[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]



                   TOOLS FOR ENHANCING SMALL BUSINESS
                  COMPETITIVENESS IN THE DALLAS AREA:
                      A REVIEW OF FEDERAL PROGRAMS

=======================================================================

                             FIELD HEARING

                               BEFORE THE

                          COMMITTEE ON SCIENCE
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED EIGHTH CONGRESS

                             SECOND SESSION

                               __________

                            JANUARY 23, 2004

                               __________

                           Serial No. 108-39

                               __________

            Printed for the use of the Committee on Science


     Available via the World Wide Web: http://www.house.gov/science



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                                 ______

                          COMMITTEE ON SCIENCE

             HON. SHERWOOD L. BOEHLERT, New York, Chairman
RALPH M. HALL, Texas                 BART GORDON, Tennessee
LAMAR S. SMITH, Texas                JERRY F. COSTELLO, Illinois
CURT WELDON, Pennsylvania            EDDIE BERNICE JOHNSON, Texas
DANA ROHRABACHER, California         LYNN C. WOOLSEY, California
JOE BARTON, Texas                    NICK LAMPSON, Texas
KEN CALVERT, California              JOHN B. LARSON, Connecticut
NICK SMITH, Michigan                 MARK UDALL, Colorado
ROSCOE G. BARTLETT, Maryland         DAVID WU, Oregon
VERNON J. EHLERS, Michigan           MICHAEL M. HONDA, California
GIL GUTKNECHT, Minnesota             BRAD MILLER, North Carolina
GEORGE R. NETHERCUTT, JR.,           LINCOLN DAVIS, Tennessee
    Washington                       SHEILA JACKSON LEE, Texas
FRANK D. LUCAS, Oklahoma             ZOE LOFGREN, California
JUDY BIGGERT, Illinois               BRAD SHERMAN, California
WAYNE T. GILCHREST, Maryland         BRIAN BAIRD, Washington
W. TODD AKIN, Missouri               DENNIS MOORE, Kansas
TIMOTHY V. JOHNSON, Illinois         ANTHONY D. WEINER, New York
MELISSA A. HART, Pennsylvania        JIM MATHESON, Utah
J. RANDY FORBES, Virginia            DENNIS A. CARDOZA, California
PHIL GINGREY, Georgia                VACANCY
ROB BISHOP, Utah                     VACANCY
MICHAEL C. BURGESS, Texas            VACANCY
JO BONNER, Alabama
TOM FEENEY, Florida
RANDY NEUGEBAUER, Texas


                            C O N T E N T S

                            January 23, 2004

                                                                   Page
Witness List.....................................................     2

Hearing Charter..................................................     3

                           Opening Statements

Statement by Representative Nick Smith, Acting Chairman, 
  Committee on Science, U.S. House of Representatives............     8

Statement by Mr. Jim Barrish, Director of Technology Assessments 
  Program, Bill J. Priest Institute..............................     8

Statement by Dr. Glen Downs, President, Bill J. Priest Institute.     8

Statement by Representative Eddie Bernice Johnson, Member, 
  Committee on Science, U.S. House of Representatives............    10

                               Witnesses:

Mr. Joseph Montes, Administrator of Region VI, Small Business 
  Administration, Dallas, Texas; accompanied by Mr. Lavan 
  Alexander, District Director, Dallas-Fort Worth, Small Business 
  Administration
    Oral Statement...............................................    11
    Written Statement............................................    13

Ms. Jo Anne Goodnight, Program Coordinator, Office of Extramural 
  Research, National Institutes of Health, U.S. Department of 
  Health and Human Services, Bethesda, Maryland
    Oral Statement...............................................    15
    Written Statement............................................    18
    Biography....................................................    25

Dr. Da Hsuan Feng, Vice President for Research and Graduate 
  Education, Professor of Physics, University of Texas at Dallas
    Oral Statement...............................................    26
    Written Statement............................................    27
    Biography....................................................    29

Dr. Robert E. Slocum, Chair and Chief Technical Officer, 
  Polatomic, Inc., Richardson, Texas
    Oral Statement...............................................    31
    Written Statement............................................    33
    Biography....................................................    36

Dr. Oliver J. Murphy, President, Lynntech, Inc., College Station, 
  Texas
    Oral Statement...............................................    37
    Written Statement............................................    38
    Biography....................................................    48
    Financial Disclosure.........................................    49

Discussion.......................................................    50

 
TOOLS FOR ENHANCING SMALL BUSINESS COMPETITIVENESS IN THE DALLAS AREA: 
                      A REVIEW OF FEDERAL PROGRAMS

                              ----------                              


                        FRIDAY, JANUARY 23, 2004

                  House of Representatives,
                                      Committee on Science,
                                                    Washington, DC.

    The Committee met, pursuant to call, at 10 a.m., in the 
Bill J. Priest Institute Conference Center, Room 2200, Dallas 
County Community College, Dallas, Texas, Hon. Nick Smith 
[Acting Chairman of the Committee] presiding.



                         FIELD HEARING CHARTER

                          COMMITTEE ON SCIENCE

                     U.S. HOUSE OF REPRESENTATIVES

                   Tools for Enhancing Small Business

                  Competitiveness in the Dallas Area:

                      A Review of Federal Programs

                        FRIDAY, JANUARY 23, 2004
                      10:00 A.M.-12:00 P.M. (CST)
               BILL J. PRIEST INSTITUTE CONFERENCE CENTER
                    DALLAS COUNTY COMMUNITY COLLEGE
                             DALLAS, TEXAS

1. Purpose

    To increase awareness of the Small Business Innovation Research 
(SBIR) Program and the Small Business Technology Transfer (STTR) 
Program, and to learn more about the opportunities that these programs 
offer to small businesses, especially those owned by minorities and 
women, in the Dallas area.

2. Witnesses

Mr. Joseph Montes is Administrator of Region VI for the Small Business 
Administration (SBA) in Dallas, Texas. Mr. Montes will be accompanied 
by Mr. Lavan Alexander, District Director in the Dallas-Fort Worth area 
for the Small Business Administration.

Ms. Jo Anne Goodnight is Director of SBIR and STTR for the National 
Institutes of Health (NIH) in Bethesda, Maryland.

Dr. Da Hsuan Feng is Vice President for Research and Graduate Education 
and Professor of Physics at the University of Texas at Dallas.

Dr. Robert Slocum is Chairman and Chief Technical Officer for 
Polatomic, Inc, an energy company based in Richardson, Texas.

Dr. Oliver Murphy is President of Lynntech, Inc. of College Station, 
Texas.

3. Overarching Questions

    The hearing will address the following overarching questions:

          In what ways are the SBIR and STTR programs designed 
        to be of assistance to small businesses that wish to do 
        research and develop innovative products either for the 
        government or the private sector?

          What is the University of Texas at Dallas doing to 
        assist high technology small businesses and how does this 
        relate to the work of the Small Business Administration?

          What is the track record of the SBIR and STTR 
        programs in the Dallas area, including with minority and women-
        owned businesses, and what is being done to enhance the 
        program's relationship in the area and with under-served 
        populations?

4. Appendix

    Small Business Innovation Research Program, Congressional Research 
Service Report, December 5, 2003

Summary

    In 1982, the Small Business Innovation Development Act (P.L. 97-
219) established SBIR programs within the major federal research and 
development (R&D) agencies. The intent of the effort was to increase 
government funding of small, high technology companies for the 
performance of R&D with commercial potential. Federal departments with 
an R&D budget of $100 million or more are required to set aside part of 
this amount to finance the SBIR activity. From its inception in FY 1983 
through FY 2002, over $13.5 billion in awards have been made for more 
than 70,000 projects. The original program was extended several times 
and is currently scheduled to sunset on September 30, 2008.

Program Description

    The Small Business Innovation Research program is designed to 
increase the participation of small, high technology firms in the 
federal R&D endeavor. Congressional support for the initiative was 
predicated upon the belief that while technology-based companies under 
500 employees tended to be highly innovative, and innovation is 
essential to the economic well-being of the United States, these 
businesses were under represented in federal R&D activities. Agency 
SBIR programs guarantee this sector a portion of the government's 
research and development budget to compensate for what was viewed as a 
preference for financing large corporations.
    Current law requires that every federal department with an R&D 
budget of $100 million or more establish and operate an SBIR program. A 
set percentage of that agency's extramural research and development 
budget--originally at 1.25 percent, now at 2.5 percent--is to be used 
to support mission-related work in small companies. (It should be noted 
that P.L. 97-219 excluded appropriated funds for defense programs in 
the Department of Energy from that agency's extramural R&D 
calculations.) In addition, all departments with R&D spending above $20 
million are directed to establish goals for financing small business 
R&D at levels higher than the previous year.
    The objectives of the SBIR program include stimulation of 
technological innovation in the small business sector, increased use of 
this community to meet the R&D needs of the government, additional 
involvement of minority and disadvantaged individuals in the process, 
and expanded commercialization of the results of federally-funded R&D. 
To achieve this, agency SBIR efforts involve a three-phase activity. In 
the first phase, awards up to $100,000 (for 6 months) are provided to 
evaluate a concept's scientific or technical merit and feasibility. The 
project must be of interest to and coincide with the mission of the 
supporting organization. Projects that demonstrate potential after the 
initial endeavor can compete for Phase II awards of up to $750,000 
(lasting one-two years) to perform the principal R&D. Phase III 
funding, directed at the commercialization of the product or process, 
is expected to be generated in the private sector. Federal dollars may 
be used if the government perceives that the final technology or 
technique will meet public needs. P.L. 102-564, a subsequent 1992 
reauthorization of the program, directed agencies to weigh commercial 
potential as an additional factor in evaluating SBIR proposals. This is 
to encourage funding of projects that may have market applicability 
rather than those that meet only the needs of government.
    Ten departments have SBIR programs including the Departments of 
Agriculture, Commerce, Defense (DOD), Education, Energy, 
Transportation, and Health and Human Services; the Environmental 
Protection Agency; the National Aeronautics and Space Administration 
(NASA); and the National Science Foundation (NSF). The Departments of 
Homeland Security and Housing and Urban Development are expected to 
begin participating in FY 2004. Each agency's SBIR activity reflects 
that organization's management style. Individual departments select R&D 
interests, administer program operations, and control financial 
support. Funding can be disbursed in the form of contracts, grants, or 
cooperative agreements. Separate agency solicitations are issued at 
established times.
    The Small Business Administration (SBA) established broad policy 
and guidelines under which individual departments operate SBIR 
programs. The agency monitors and reports to Congress on the conduct of 
the separate departmental activities. Criteria for eligibility in the 
SBIR program include companies that are independently owned and 
operated; not dominant in the field of research proposed; for profit; 
the employer of 500 or less people; the primary employer of the 
principal investigator; and at least 51 percent owned by U.S. citizens 
or lawfully admitted permanent resident aliens. The SBA operates a 
computer system to link SBIR awardees with venture capital firms. P.L. 
106-554 mandated the establishment of two data bases, one for 
government and one for the public, that provide information on SBIR 
programs across departments.
    A pilot effort designed to encourage commercialization of 
university and federal laboratory R&D by small companies was created by 
P.L. 102-564, reauthorized through FY 2001 by P.L. 105-135, and 
extended through FY 2009 by P.L. 107-50. The STTR program provides 
funding for research proposals that are developed and executed 
cooperatively between a small firm and a scientist in a research 
organization and fall under the mission requirements of the federal 
funding agency. Up to $100,000 in Phase I financing is available for 
one year; Phase II awards of $500,000 may be made for two years. 
Financial support for this effort comes from a 0.15 percent set-aside 
of the R&D budgets of departments that spend over $1 billion per year 
on research and development. According to the provisions of P.L. 107-
50, in FY 2004 the set-aside will increase to 0.3 percent and the 
amount of individual Phase II awards will increase to $750,000. The 
Departments of Energy, Defense, and Health and Human Services, NASA, 
and NSF participate in the STTR program.

Implementation

    The General Accounting Office (GAO) is legislatively directed to 
assess the implementation of the Small Business Innovation Development 
Act, as amended, and has issued a series of reports documenting its 
findings. A 1987 study found that both the evaluation and selection 
processes were sufficient to ``reasonably'' insure awards were based on 
technical merit. It was also determined that the majority of agencies 
were not awarding Phase I grants and contracts within the six-month 
time frame required by the SBA guidelines. Another GAO report the 
following month surveyed the participants and noted that most were 
``generally satisfied'' with the administration of SBIR programs.
    In 1989, GAO reported that agency heads found the SBIR effort to be 
beneficial and met the organization's R&D needs. Most indicated that 
the ``. . .SBIR programs had developed new research areas, placed more 
emphasis on the application of research results, and led to wider use 
of small businesses as research performers.'' The study concluded that 
projects were, for the most part, of high quality. At DOD and NASA, 
however, SBIR efforts stressed R&D to meet agency mission requirements 
in contrast to other SBIR programs that focused on commercialization 
for private sector markets. All of the departments stated that SBIR 
projects, when compared with other research activities, had greater 
potential to result in new products and processes.
    Testimony presented by GAO in 1991 stated that the program ``. . 
.clearly is doing what Congress asked it to do in achieving commercial 
sales and developmental funding from the private sector.'' An SBA study 
found that approximately one in four SBIR projects will result in the 
sale of new commercial products or processes. Another GAO report issued 
in May 1992 noted that despite a short time frame and the fact that 
many SBIR projects had not had sufficient time to mature into 
marketable technologies and techniques, ``. . .the program is showing 
success in Phase III activity.'' As of July 1991, almost two-thirds of 
the projects already had sales or received additional funding 
(primarily from the private sector) totaling approximately $1.1 
billion.
    The 1992 study also identified several issues for possible further 
congressional exploration. According to GAO, DOD placed less emphasis 
on commercialization than other agencies and utilized the SBIR program 
primarily to address the department's R&D needs. Questions were raised 
about the requirements for competitive bidding when companies looked to 
federal departments for Phase III contracts after successfully 
completing Phases I and II. GAO noted that clarification of the 
Competition in Contracting Act of 1984 (as amended) might be necessary. 
In addition, there was disagreement over whether the federal agency or 
the small firm should continue to work on technology development after 
the cessation of SBIR project funding. GAO also concluded that firms 
receiving multiple Phase II awards tended to have lower Phase III sales 
and less additional developmental support. The reasons for this 
remained unclear, but the suggestion was made that these companies may 
have focused on securing funds through SBIR awards rather than through 
commercialization of their R&D results.
    A March 1995 GAO report found that multiple Phase II funding had 
become a problem, particularly at NSF, NASA, and DOD. Among the reasons 
cited were the failure of companies to identify identical proposals 
made elsewhere in violation of the mandatory certification procedure; 
uncertainty in definitions and guidelines concerning ``similar'' 
research; and lack of interagency mechanisms to exchange information on 
projects. Several recommendations were made to address duplication. GAO 
testimony presented in March 1996 indicated that the SBA had taken 
steps to implement these suggestions. The study also determined that 
the quality of research appeared to have ``kept pace'' with the 
program's expansion, although it was still too early to make a 
definitive judgment. Factors supporting this assessment included the 
substantive level of competition, more proposals deemed meritorious 
than could be funded by agencies, and appraisals by departmental SBIR 
personnel indicating the high quality of submissions.
    Another GAO study, released in April 1998, noted that between 35-50 
percent of SBIR projects had resulted in sales or additional private 
sector investment. Despite earlier indications of problems associated 
with multiple award winners, this report found that such firms have 
similar commercialization rates as single awardees. Critical technology 
lists were being used to determine agency solicitations and there was 
little evidence of participation by foreign firms. While several 
agencies had new programs to assure continuity in funding, there were 
indications of possible inaccuracies in defining the extramural R&D 
budgets upon which the set-aside is based.
    The June 1999 GAO analysis reported that SBIR awards tend to be 
concentrated both geographically and by firm despite widespread 
participation in the program. ``The 25 most frequent winners, which 
represent fewer than one percent of the companies in the program, 
received about 11 percent of the program's awards from fiscal year 1983 
through fiscal year 1997.'' Businesses in a small number of states, 
particularly California and Massachusetts, were awarded the most number 
of projects. The study also noted that while commercial potential is 
considered by all agencies, each has developed different evaluation 
approaches. Other goals, including innovation and responsiveness to 
agency mission, still remain important in determining awards.
    GAO also has evaluated the STTR program. A January 1996 report 
found that, in general, federal agencies favorably rated the quality of 
winning proposals (in the first year) and that most projects had 
commercial potential, although the costs might be high. The government 
had taken steps to avoid potential conflicts of interest between 
federal laboratories and departmental headquarters. There was no 
indication that this pilot effort was competing for proposals with the 
established SBIR activity or ``. . .reducing the quality of the 
agencies' R&D in general.'' Instead it was credited for encouraging 
collaborative work. Yet, GAO noted that because the programs are so 
similar, there are questions whether or not a separate activity is 
necessary. Any real evaluation of success in technology transfer, 
however, could not be accomplished for several years because of the 
time needed to bring the results of R&D to the commercial marketplace. 
These findings were reiterated in testimony given by GAO in May and 
September 1997.
    A June 2001 GAO study of all companies which received STTR awards 
between FY 1995 and FY 1997 noted the participant's belief that both 
the firms and the research institutions contributed to expanded R&D 
although the private sector was more influential in determining the 
direction of the research. The companies ``. . .reported about $132 
million in total sales and about $53 million in additional 
developmental funding.'' They identified 41 new patents and the 
creation of 12 new spin-off firms. Further, the awardees preferred that 
the STTR program remain separate from the SBIR activity.

Awards

    From its inception in FY 1983 through FY 2001, over 64,248 awards 
have been made totaling more than $12 billion. The table below 
summarizes the funding and the number of projects selected for the SBIR 
program as provided by the SBA; information on the STTR program is 
contained in the subsequent chart.





    Chairman Smith. I am going to do some preliminary, and 
maybe even I will make some of my comments to you folks.
    I am Nick Smith, a Member of Congress from Michigan, who 
has been on the Science Committee for 12 years, and it just 
seems to me that since government is in a particular sort of a 
crunch situation right now, because we are spending a lot of 
money on homeland security. So, that means that the oversight 
of every program, including the two programs we are going to 
discuss today, we are going to look very carefully at, are ways 
to be more efficient, to be more productive, how can we help 
small business more, and at the same time try to make sure 
taxpayers get their bang for the buck.
    I see the organizer of this meeting, and we're not on 
record yet, Eddie Bernice, but we will be when you take your 
seat.
    Mr. Barrish. All right, thank you, Congressman Smith. My 
name is Jim Barrish, I'm the Director of Technology Assessments 
Program.
    Chairman Smith. Jim, sorry, I didn't know you were going to 
do that.
    Mr. Barrish. No problem. I'd like to say a few words first, 
and welcome you all here to the Bill J. Priest Institute. One 
of the processes of this hearing today, what we'd like to do 
is, many of you will have questions and we are going to try to 
if you could jot those down on a piece of paper and pass them 
forward they will be picked up by Ms. Harrington here, she just 
raised her hand. She's going to be passing out some little note 
pads, so we'd appreciate if you could do that, and that will 
help us to keep an orderly manner of the question and answer 
process.
    Congresswoman Johnson and Congressman Smith are just about 
ready to go, but first off I'd like to have the President of 
Bill J. Priest Institute welcome you here and say a few words. 
The President is Dr. Glen Downs.
    Dr. Downs. Good morning. I'm going to just say just a 
welcome, and I know the Congressmen and Congresswoman have much 
to do and much to accomplish this morning. We want to first of 
all welcome you and our very good friend, Congresswoman 
Johnson, who has supported us so well, and we are delighted to 
have a Michigan man with us today as well. So, thank you.
    But, welcome to the Bill J. Priest Institute, and we're 
delighted to have you here, and we are always pleased with what 
the STTR efforts are doing, and we are looking forward to our 
conference coming up in May on the STTR conference on May the 
11th. So, I wanted to make sure you put that down.
    But, welcome this morning, and just from a logistics 
standpoint, restrooms, if you need those, are down the hall to 
the right, so make yourselves at home, and if we can help you 
in any way here this morning be sure to call us.
    Thank you very much.
    Mr. Barrish. Okay.
    Chairman Smith, we'll turn it over to you and Eddie 
Bernice.
    Chairman Smith. Well again, thank you all for coming this 
morning, and any ideas or suggestions that you have that you 
don't get a chance to somehow convey this morning, please feel 
free to contact Congresswoman Johnson or myself. I mean, what 
we are trying to do is make sure the program is running as 
effectively and efficiently as it can, both the SBIR and the 
STTR program.
    We want to make sure that we are maximizing and developing 
the kind of research that's going to be most helpful, both to 
government and to the private sector.
    It seems to me that research is one of our keys in 
developing the kind of products that people around the world 
are going to want to buy, developing the kind of products that 
we in government can make, that we can use and be more 
efficient in what we are trying to produce as a government, and 
developing the kind of research that's going to allow us to 
find more efficient ways to develop those products.
    So, the future of our economy that's under very strong 
competition right now from other countries around the world is 
the challenge that our kids and our grandkids are going to have 
in the future.
    I'd like to especially thank Eddie Bernice Johnson for 
arranging this hearing today, this Science Committee hearing.
    This Science Committee has four full committees. This is 
the Research Subcommittee of Science. We take a lot of pride, I 
think, in our good relations in the Science Committee between 
Democrats and Republicans. The Representative and I, 
particularly, I think, work together too, and we've 
accomplished some good bills for the National Science 
Foundation, probably one of our largest responsibilities.
    Federal agencies, of course, with research dollars of over 
$100 million are obligated to be part of the SBIR program, and 
if an agency has over a billion dollars then they are required 
to spend part of that money in the STTR program.
    The SBIR and the STTR programs, the goal is to promote 
economic growth and to allow government to act more effectively 
and more efficiently for the products that they buy.
    The initial funding is distributed competitively. SBIR and 
STTR programs help eliminate some of the financial barriers to 
research and development efforts of small businesses that are 
so important for increasing revenue and ultimately creating 
jobs. So, in addition to how it can help small business and 
economic development in this area of the country, we are going 
to take back your suggestions and ideas of how it can help in 
the United States, and also how can we do it more effectively. 
Is there a chance that we might take some of the eventual 
profits from a company that has been stimulated by taxpayer 
dollars going into being part of the research effort to come 
back as a revolving fund or to come back possibly with what Dr. 
Slocum has suggested in terms of being a mentor for other 
companies and giving some of that some of your time and 
encouraging other companies how to get involved in this 
government program.
    We'll be looking at how the money that you get is received 
as a small business, does that go on your tax returns as 
income? Is it also eligible for the research development tax 
credit, and so we are interested and probably, or at least I've 
got some questions, Eddie Bernice, on the whole ramifications 
and how do we do a better job.
    With that, let me again appreciate the chance to be here 
and thank Eddie Bernice again for arranging and organizing this 
hearing, and so with that, Congresswoman, I would turn the 
microphone over to you.
    Ms. Johnson. Thank you very much, Mr. Chairman, and thank 
you for coming to this sunny day in Texas. I know it's not like 
this in Michigan right now, and you won't be here long, but do 
enjoy.
    Chairman Smith. Well, and just to interrupt, I do, I've got 
a meeting in Pittsburgh and my plane leaves at 12:40, so I'll 
try not to talk long and I'll turn it over to you.
    Ms. Johnson. Okay, thank you very much, and let me thank 
the Dallas County Community College District for hosting us, 
and all of the panelists who have come, and all of you who are 
availing yourselves for this information.
    Can you hear me? Now, can you hear me? Is that better? 
Okay, now am I sounding a little bit more clear.
    Again, let me thank the Dallas County Community College 
District for hosting us today, and I want to thank my chair, 
Mr. Smith, for traveling here from Michigan. We all stay so 
busy and I knew that he would be, as we all are. And, I thank 
the panelists for being here, and you.
    I think it really is an important hearing to increase the 
awareness of the Small Business Innovation Research, the SBIR 
program as we call it, and the Small Business Technology 
Transfer, which we call the STTR program, and to learn about 
the opportunities that these programs offer to small 
businesses, especially those owned by minorities and women.
    We want to thank Mr. Jim Barrish, who has worked very hard 
in putting all the logistics together. He's accustomed to me 
coming down and borrowing these facilities. And finally, I'm 
going to cut my prepared remarks short and simply submit them 
to the record so that we can go ahead and get started.
    I want to apologize for being a little bit late. I started 
out going to be here early, but an accident on the freeway 
slowed me down a bit, and there's only way out from where I 
live.
    This is a funding vehicle which is vastly under tapped by 
small businesses in this metroplex, and by research 
universities. So, when the State of Texas is viewed as a whole, 
it does not do badly under the SBIR program, but when we look 
at this area we find that we are not taking advantage of it.
    Texas received a total of 540 grants worth of $106 million 
out of $1.4 billion awarded nationwide in 2002. So, when one 
looks regionally within the state it's a different story, less 
than 20 north Texas companies have taken advantage of this.
    So, I believe that for our region this is a particularly 
important funding source, and there are 700 hardware suppliers 
for the Department of Defense, and many of them are hardly 
Raytheon-like companies, far less than a billion dollars in 
revenue, and far less than 400 employees. So, I know that we 
have plenty of companies who can take advantage of this.
    Without further comment, I'm going to turn this back over 
to Mr. Smith so we can proceed with our witnesses.
    Chairman Smith. Would you like to introduce the witnesses?
    Ms. Johnson. Okay.
    We have Mr. Joseph Montes, who is a Region Administrator, 
and Mr. Lavan Alexander, who is the District Director of the 
Dallas-Fort Worth Small Business Administration, and I'm 
delighted that they were able to come, especially Mr. Alexander 
who got a very late invitation. Ms. Jo Anne Goodnight, who is 
the Program Coordinator for the National Institutes of Health 
for the SBIR and the STTR Programs. Dr. Feng, who is Vice 
President for Research at the University of Texas at Dallas, 
and I tell you he is very active. We are in touch very often. I 
am delighted you are here. Dr. Robert Slocum, who is Chair and 
Chief Technical Officer of the Polatomic, which I'm assuming is 
one of the businesses, and Dr. Oliver Murphy, who is President 
of Lynntech, Incorporated.
    Chairman Smith. These are people that are coming in, that 
are teleconferencing in from the Small Business Administration. 
In fact, I'll grab your mike, Eddie Bernice.
    Ms. Johnson. Okay, I was wondering who was 
teleconferencing.
    Chairman Smith. The teleconferencing, besides the Science 
Committee in Washington, teleconferencing in from the Small 
Business Administration, Victor Klingelhofer, Maurice Swinton, 
and Brad Berry, all from the Small Business Administration.
    And, with that, we will proceed, and without objection the 
full text of every witness' testimony will be included in the 
record. This record is made available to all Members of the 
Science Committee, so even though there are only two of us here 
today this information will be available, not only to all the 
Members of our subcommittee, but all the Members of the Science 
Committee, and I would ask that the witnesses try to limit 
their presentation to five to seven minutes, so that maybe we 
can get on and have a little more time for questions, and with 
that, Dr. Murphy, we'll start with you, unless David Finger, my 
Science Committee staff, told me that we are going to start 
with Mr. Alexander.
    Mr. Alexander. What we are going to do is start with the 
Regional Administrator, who will just do one statement to cover 
both. The other we'll put on record.
    Chairman Smith. So, Mr. Montes.

STATEMENT OF JOSEPH MONTES, ADMINISTRATOR OF REGION VI FOR THE 
SMALL BUSINESS ADMINISTRATION in DALLAS, TEXAS; ACCOMPANIED BY 
 LAVAN ALEXANDER, DISTRICT DIRECTOR, DALLAS-FORTH WORTH, SMALL 
                    BUSINESS ADMINISTRATION

    Mr. Montes. Thank you, Mr. Chairman, Congresswoman Johnson, 
for inviting the U.S. Small Business Administration (SBA) to 
testify at your hearing this morning.
    The Small Business Innovation Research (SBIR) program, as 
you know, is a highly-competitive program that encourages small 
business to explore their technological potential and provides 
the incentive to profit from its commercialization.
    Small businesses need only to certify that they meet the 
program's eligibility criteria to participate in the SBIR and 
Small Business Technology Transfer (STTR) programs.
    In 1992, the Congress enacted Public Law 102-64, which 
authorized the STTR program, a companion program to SBIR. In 
2002, Public Law 107-50 reauthorized the STTR program through 
Fiscal Year 2009.
    Even though the SBIR program was a success, Congress felt 
that more could be done to link small businesses with creative 
ideas and technology at the universities' non-profit scientific 
and educational institutions and federal laboratories. This 
collaboration will result in a better commercialization rate 
for federally-sponsored research conducted at non-profit 
institutions.
    Both programs share the same philosophy, to use federally-
funded research and development requirements to promote 
technological innovation by small businesses and strengthen the 
American economy.
    Small businesses that have been successful in the SBIR and 
STTR programs have been those that have submitted proposals 
demonstrating both a high level of technical merit and the 
ability to use available resources such as subcontractors and 
laboratories to assist in developing and delivering the 
required research.
    Following submissions or proposals, agencies make SBIR and 
STTR awards based on small business qualification, degree of 
innovation, technical merit and future market potential. Small 
businesses that receive awards then begin, as you know, a 
three-phase program. Phase I for the SBIR program is 
essentially the start-up phase. Awards of up to $100,000 for 
approximately six months duration support exploration of the 
technical merit or feasibility of an idea or technology. Phase 
II then awards of up to $750,000 for up to two years, which 
expand Phase I results. The Phase II award decision process 
requires, among other things, substantive consideration of a 
proposal's commercial potential. Phase III is, essentially, the 
commercialization process. At that phase, no SBIR funds support 
the program.
    Like SBIR, the STTR program is structured in three phases. 
STTR goes beyond the SBIR program, in that it involves 
cooperative research and development performed jointly by a 
small business and a research institution.
    Although the project is a joint effort, the small business 
exercises overall management, control and responsibility for 
the project.
    I should note that in this past year, as part of the 
overall government program review process initiated by the 
Office of Management and Budget, the SBIR/STTR programs of the 
Departments of Defense and Commerce were reviewed with the 
Program Assessment Rating Tool. Those reviews and corresponding 
recommendations will be published in conjunction with the 
release of the President's Fiscal Year `05 budget.
    Some of the successful companies here in Texas who have 
participated in the SBIR and STTR programs are: Knowledge Based 
Systems of College Station, Texas, which commercialized a 
knowledge based software tool that facilitates optimization 
model development; Polatomic, Incorporated, of Richardson, 
developed a magnetometer developed under an SBIR award to fill 
the U.S. Navy's need for a high-performance sensor for 
detection and localization of magnetic targets of interest for 
anti-submarine warfare; and OmniSite Bio Diagnostics of Austin, 
which has developed technologies extended into human 
diagnostics, therapeutics, home care and pharmaceutical 
sectors, in addition to homeland defense, biological warfare, 
veterinary, agricultural and environmental markets.
    In Fiscal Year `02, the most recent year for which data is 
available, the State of Texas ranked ninth among all states, 
the District of Columbia, and Puerto Rico, in terms of total 
dollars received from SBIR program funding. That year, 220 SBIR 
awards were made to small, high-tech businesses in the State of 
Texas totaling $53 million, 11 awards totaling $2,752,000 were 
made to businesses that certified that they were minority 
owned, 23 awards totaling $4 million were made to businesses 
that certified that they were woman owned. The 220 SBIR awards 
made to firms in Texas represent awards to 89 unique 
businesses.
    In Fiscal Year `02, the State of Texas ranked fifth among 
all the states, the District of Columbia, and Puerto Rico, in 
terms of total dollars received from STTR program funding. That 
year, 21 STTR awards were made to small, high-tech businesses 
in the State of Texas, totaling $4.3 million, three awards 
totaling $700,000 were to businesses that certified that they 
were minority-owned, one award, totaling $483,000, was made to 
a firm that certified that it was woman owned. The 21 total 
STTR awards made to firms in Texas represent awards to 20 
unique businesses.
    This concludes my presentation. Thank you very much, Mr. 
Chairman.
    [The prepared statement of Mr. Montes follows:]

                  Prepared Statement of Joseph Montes
                       for Victor G. Klingelhofer
                     Associate Deputy Administrator
       Office of Government Contracting and Business Development
                   U.S. Small Business Administration

    Thank you for inviting me to discuss the Small Business Innovation 
Program and the Small Business Technology Transfer Program.
    The Small Business Innovation Development Act of 1982, Public Law 
97-219 (as amended) directs the U.S. Small Business Administration 
(SBA) to establish policy for monitoring, evaluating, and reporting on 
accomplishments of the Small Business Innovation Research (SBIR) 
program. Public Law 106-554 reauthorized the program through September 
30, 2008.
    The SBIR program is a highly competitive program that encourages 
small business to explore their technological potential and provides 
the incentive to profit from its commercialization. Small businesses 
need only certify that they meet the following eligibility criteria to 
participate in the SBIR and Small Business Technology (STTR) programs:

        (a)  The concern must be organized for profit, although it can 
        take the form of a sole proprietorship, partnership, limited 
        liability company, corporation, association, trust, cooperative 
        or joint venture;

        (b)  The concern must be 51 percent owned and controlled by one 
        or more U.S. citizens or permanent resident aliens and must 
        have a significant place of business in and operate primarily 
        within the U.S.;

        (c)  Principal researcher must be employed more than 50 percent 
        by the small business; and

        (d)  The concern's size limit must be 500 employees or fewer.

    In 1992, the Congress enacted Public Law 102-564, which authorized 
the STTR program, a companion program to SBIR. In 2002, Public Law 107-
50 reauthorized the STTR program through FY 2009. Even though the SBIR 
program was a success, Congress felt that more could be done to link 
small businesses with creative ideas and technology at universities, 
non-profit scientific and educational institutions, and federal 
laboratories. This collaboration would result in a better 
commercialization rate for federally sponsored research conducted at 
non-profit institutions. Both programs share the same philosophy to use 
federally-funded research and development requirements to promote 
technological innovation by small businesses and strengthen the 
American economy.
    Small businesses that have been successful in the SBIR and STTR 
programs have been those that have submitted proposals demonstrating 
both a high level of technical merit and the ability to use available 
resources such as subcontractors and laboratories to assist in 
developing and delivering the required research. Many of the 
unsuccessful proposals submitted to the programs have lacked technical 
merit, did not address the research effort fully, attempted to perform 
the research effort on their own without having the necessary internal 
resources to accomplish this effort, and/or dud not include all of the 
necessary forms, certifications and or other documents required by the 
requesting procuring agency. I am certain that testimony of my 
colleagues at the National Institutes of Health and the National 
Science Foundation can provide additional information on this issue 
from their experience.
    Following submission of proposals, agencies make SBIR and STTR 
awards based on small business qualification, degree of innovation, 
technical merit, and future market potential. Small businesses that 
receive awards then begin a three-phase program.
    Phase I for the SBIR program is essentially the start-up phase, 
involving a solicitation of contract proposals or grant applications to 
conduct feasibility-related experimental or theoretical R/R&D related 
to describe agency requirements. Awards up to $100,000 for 
approximately six-months duration support exploration of the technical 
merit or feasibility of an idea or technology.
    Phase II awards of up to $750,000, for up to two years, expand 
Phase I results. The Phase II award decision process requires, among 
other things, substantive consideration of a proposal's commercial 
potential.
    Phase III refers to work that derives (from, extends, or logically 
concludes effort(s) performed under prior SBIR funding agreements. This 
comprises the period during which Phase II innovation moves from the 
laboratory into the marketplace. No SBIR funds support this phase.
    Like SBIR, the STTR program is structured in three phases. Phase I 
in the STTR program is funded at up to $100,000 for a one-year period. 
Phase II funds Phase I projects that have the most potential for 
further development at up to $750,000 for up to an additional two 
years. Under Phase III, no federal STTR funding is provided to bring 
the innovation to the commercial marketplace.
    STTR goes beyond the SBIR program in that it involves cooperative 
research and development performed jointly by a small business and a 
research institution. Although the project is a joint effort, the small 
business exercises overall management, control, and responsibility for 
the project.
    Since inception of the program, over 12,000 awards have been made 
totaling $549 million. Minority/disadvantaged firms have received 312 
awards totaling $63.5 million.
    SBA's role in the SBIR and STTR programs is to:

          Develop, coordinate, issue and update the policy 
        directive.

          Develop and administer information and outreach 
        programs for the SBIR and STTR programs.

          Develop and maintain a source and information file of 
        interested small businesses.

          Survey, monitor and report on each agency's SBIR and 
        STTR programs.

          Report annually to Congress on each agency's SBIR and 
        STTR program.

    The SBIR and STTR programs continue to demonstrate that, with 
program support from the Federal Government, small high-tech firms can 
convert basic ideas and research into commercial products. This 
partnership between the Government and private sector has proved to be 
remarkably effective in some areas.
    Over a 20-year period, federal agencies participating in the SBIR 
program have awarded more than 69,000 awards worth over $13.3 billion 
to thousands of small high-tech companies. Minority/disadvantaged firms 
have received over 8,000 awards totaling $2.9 billion. Awards have been 
made to firms in all 50 states, Puerto Rico and the District of 
Columbia.
    I should note that in this past year, as part of the overall 
government program review process initiated by the Office of Management 
and Budget, the SBIR/STTR programs of the Departments of Defense and 
Commerce were reviewed with the Program Assessment Rating Tool (PART). 
Those reviews and corresponding recommendations will be published in 
conjunction with the release of the FY 2005 President's Budget.
    The SBA, through its Federal and State Technology Partnership 
(FAST) program, requires that applicants to the program address in 
their proposal submissions for funding how they will provide outreach 
and technical assistance to minority and women-owned firms within their 
respective states. This criterion is weighted and evaluated by a peer 
review panel that selects the grantees for the FAST program. The SBA 
also has been the lead agency for the past five years in an initiative 
to provide outreach and technical assistance to the Historically Black 
Colleges and Universities (HBCUs), Small Disadvantaged, Minority and 
Women-owned businesses. Through a partnership between the Environmental 
Protection Agency (EPA), Defense Advanced Projects Agency (DARPA) and 
the SBA, representatives at various HBCUs were engaged by the co-
sponsoring federal program managers to train them in the program 
administration and technical components of the SBIR and STTR programs. 
This has enabled the HBCUs to become mentors within their given states 
or regions and assist in increasing the participation level of the 
under-represented groups. This initiative has proven to be very 
successful. Both the EPA and DARPA have acknowledged increases in their 
programs by small disadvantaged, minority and women-owned businesses. 
Other participating federal agencies have also witnessed an increase in 
the number of proposals received for their agencies SBIR and STTR 
programs.
    Some of the successful companies in Texas who have participated in 
the SBIR and/or the STTR programs are:

        (1)  Knowledge Based Systems, Inc, College Station, Texas, 
        commercialized a knowledge based software tool that facilitates 
        optimization model development;

        (2)  Polatomic, Inc., Richardson, Texas, developed a 
        magnetometer developed under an SBIR award to fill the U.S. 
        Navy's need for a high performance sensor for detection and 
        localization of magnetic targets of interest for Anti-Submarine 
        Warfare; and

        (3)  OmniSite BioDiagostics, Inc, based in Austin, Texas, has 
        developed technologies extending into human diagnostic, 
        therapeutic, home care, and pharmaceutical sectors, in addition 
        to homeland defense, bio-warfare, veterinary, agricultural, and 
        environmental markets.

    Additional stories on the awards that have impacted businesses in 
Texas and elsewhere can be found in the SBA's SBIR and STTR Annual 
Reports to Congress, and also on the SBA's SBIR website at www.sba.gov/
sbir listed under the information for the Federal and State Technology 
Partnership Program (FAST). The SBA will also forward copies of the 
most recent SBIR and STTR Annual Reports to the Members of this 
hearing.
    In Fiscal Year 2002, the most recent year for which data is 
available, the state of Texas ranks ninth among all states, the 
District of Columbia, and Puerto Rico in terms of total dollars 
received from SBIR program funding. That year, 220 SBIR awards were 
made to small, high-technology businesses in the State of Texas 
totaling $53,422,476. Eleven awards totaling $2,752,756 were made to 
businesses that certified that they were minority-owned. Twenty-three 
awards totaling $4,250,893 were made to businesses that certified that 
they were woman-owned. The 220 total SBIR awards made to firms in Texas 
represent awards to 89 unique businesses.
    In Fiscal Year 2002, the state of Texas ranks fifth among all 
states, the District of Columbia, and Puerto Rico in terms of total 
dollars received from STTR program funding. That year, 21 STTR awards 
were made to small, high-technology businesses in the State of Texas 
totaling $4,353,693. Three awards totaling $699,333 were made to 
businesses that certified that they were minority-owned. One award 
totaling $483,781 was made to a firm that certified that it was woman-
owned. The 21 total STTR awards made to firms in Texas represent awards 
to 20 unique businesses.
    Thank you for the opportunity to provide you this written 
testimony.

    Chairman Smith. Thank you.
    Ms. Goodnight.

STATEMENT OF MS. JO ANNE GOODNIGHT, PROGRAM COORDINATOR, OFFICE 
  OF EXTRAMURAL RESEARCH, NATIONAL INSTITUTES OF HEALTH, U.S. 
  DEPARTMENT OF HEALTH AND HUMAN SERVICES, BETHESDA, MARYLAND

    Ms. Goodnight. Good morning, Mr. Chairman, Congresswoman 
Johnson, and Members of the Committee receiving the written 
record.
    My name is Jo Anne Goodnight. I am the Coordinator of the 
Small Business Innovation Research and Small Business 
Technology Transfer programs at the NIH, National Institutes of 
Health, and also for the Public Health Agencies in the 
Department of Health and Human Services. On behalf of the NIH, 
I am pleased to have the opportunity to provide an overview of 
the NIH SBIR and STTR programs.
    My long statement focuses primarily on the role that SBIR 
and STTR plays in the NIH research agenda, ways small 
businesses can take advantage of the research funding 
opportunities these programs offer, and I'll end with a few of 
our success stories.
    The NIH constitutes about 98 percent of the Department's 
entire SBIR and STTR program activity. In addition, of the 11 
participating federal agencies our department contributes the 
second largest amount of SBIR and STTR funding.
    In Fiscal year 2003, the NIH SBIR and STTR budget was about 
$557 million. However, NIH tends to invest more than the 
minimum statutory requirement, resulting in actual obligations 
of $564 million. NIH made about 2,000 SBIR awards, amounting to 
$533 million, and 152 STTR awards, amounting to $31 million.
    The State of Texas received from NIH a total of 81 SBIR 
awards, for a total of $19.1 million, and seven STTR awards 
amounting to $2 million in Fiscal Year 2003. Of these, Dallas 
received six SBIR grant awards and one STTR award, totaling 
about $1.4 million.
    The NIH mission is to uncover new dollars that will lead to 
better health for everyone. The SBIR and STTR programs help us 
accomplish the mission, particularly in the goal of translating 
scientific findings and advances from the test tube to the 
medicine cabinet.
    Through a competitive three-phase award system, the 
programs provide qualified small business concerns with 
opportunities to propose innovative ideas, to explore their 
technological potential, and to profit from commercialization 
of federally-funded R&D projects that are relevant to our 
mission. We've watched the programs evolve through stages of 
infancy when a Phase I award was but $50,000 for six months, 
through some trials and tribulations of adolescence, into a 
mature, yet now invigorated program.
    NIH has 23 institutes and centers that participate in the 
SBIR and STTR programs, and each of these awarding components 
has a research mission with well-defined priorities. Examples 
of the types of research we support include, but certainly are 
not limited to, biodefense, biosensors, nanotechnologies, 
proteomics, imaging, bioengineering, behavioral research, 
computational biology and telemedicine technology.
    While we issue solicitations for projects on specific 
topics relevant to each Institute and Center, we also encourage 
small businesses to propose investigator-initiated research 
ideas relevant to our mission. Investigator-initiated ideas are 
the cornerstone of the NIH research portfolio, including 
projects supported by the SBIR and STTR programs.
    Now, for a company to obtain an SBIR or STTR award, it must 
take several steps. Start with an innovative idea with 
commercial potential. Understand our agency's mission and areas 
of research we support. Discuss the idea with our relevant 
program staff. Submit the application for a scientific and 
technical merit review. Discuss with program staff the outcome 
of the review and obtain guidance for the next steps. Meet the 
eligibility criteria for a small business concern as defined by 
the Small Business Administration and demonstrate research 
integrity.
    While there are 11 federal agencies that participate in a 
national SBIR program, it's not a one-size-fits-all program, 
given our varying missions and needs. Procedures that 
distinguish the NIH SBIR and STTR programs from those at other 
agencies are primarily a result of the degree of flexibility 
that the SBA has provided to accommodate the changing nature of 
biomedical and behavioral research.
    What has made our program so appealing are the 
opportunities for firms to propose R&D in the fields that have 
the most biological promise, rather than to restrict their 
ideas to projects that can only be conducted under a prescribed 
amount of time and money. Other distinguishing features of the 
NIH SBIR and STTR programs include multiple submission dates, 
allowability of amended application, and gap funding options.
    NIH has taken steps to enhance and streamline of programs, 
particularly, with regard to bridging the gaps between the 
phases and enhancing our outreach endeavors. Within the State 
of Texas, NIH was pleased to be a major participant at 
yesterday's Southwest SBIR and STTR Forum, hosted by UH SBDC, 
Bio Houston, Rice University and Houston Technology Center.
    Last June, NIH participated in an SBIR and STTR ATP 
Workshop in Dallas, hosted by the Dallas Forum of Biomedical 
Technology and the North Texas SBDC, an event that was attended 
by about 140 participants, and we're looking forward to 
participating in similar events this May.
    A number of NIH SBIR and STTR projects have resulted in 
significant improvements to our nation's health and an 
increased productivity of other researchers. I would like to 
describe just a few successes in particular that exemplify the 
kind of SBIR and STTR research that NIH supports.
    Looking back now more than 20 years to one of the earliest 
SBIR projects that NIH supported, funding allowed OPTIVA 
Corporation in the State of Washington to develop a nine-volt 
powered toothbrush, the Dentifreeze Dispensing Sonic Brush, 
which we have all come to know as the Sonicare Toothbrush. In 
addition to the health benefits, this project resulted in a 
$300 million business and the creation of over 500 jobs. OPTIVA 
was sold to Philips Electronics in 2000.
    Plexon, Inc., in Dallas, Texas, received an NIH Phase I and 
Phase II award to develop an automated procedure for detecting 
and separating extracellular neural action potentials, or 
spikes, in real time. A diagram is included in my written 
statement for the record to portray this technology, which has 
applications to aid physically-impaired individuals. In 
addition to providing insight into the basic brain function, 
this technology has broad implications in the development of 
interfaces for direct brain-machine communication and 
prosthetic devices for nervous system impaired individuals. 
Plexon has grown from a small, one-person company, to a 20-
employee company of a highly-focused team of engineers, 
biophysicists and neuroscientists, with R&D and technical 
expertise. Joint R&D activities are being conducted with the 
University of North Texas, as well as other research 
institutions. Plexon's sales have reached the $3 million per 
year mark, and their customers include over 75 domestic and 
international academic research labs, research hospitals, 
pharmaceutical companies and military research labs.
    There are two additional success stories that are in my 
written statement, from Nano Matrix, Incorporated, in Dallas, 
Texas, as well as MicroFab Technologies, Incorporated, in 
Plano, Texas.
    Thank you for the opportunity to describe how NIH has 
utilized the programs and benefitted from them, and I'd be 
pleased to answer any questions you may have.
    [The prepared statement of Ms. Goodnight follows:]

                Prepared Statement of Jo Anne Goodnight

    Good morning Mr. Chairman, Congresswoman Johnson, and Members of 
the Committee. My name is Jo Anne Goodnight. I am the Coordinator of 
the Small Business Innovation Research (SBIR) and Small Business 
Technology Transfer (STTR) Programs at the National Institutes of 
Health (NIH) and for the Public Health agencies in the Department of 
Health and Human Services. On behalf of the NIH, I am pleased to have 
the opportunity to provide an overview of the NIH SBIR and STTR 
Programs. My statement focuses on eight areas:

          the role SBIR and STTR plays in the NIH research 
        agenda,

          the types of research NIH supports under SBIR and 
        STTR,

          steps a company needs to take to obtain an SBIR or 
        STTR award,

          features that distinguish the NIH SBIR and STTR 
        programs from those at other agencies,

          common strengths and weaknesses in NIH SBIR and STTR 
        application,

          the effectiveness of these Programs,

          efforts to enhance the Programs, and, finally,

          a few of our NIH SBIR and STTR ``success'' stories.

    The NIH is the principal operating component within the Department 
of Health and Human Services participating in the SBIR and STTR 
program. We constitute about 98 percent of the Department's entire SBIR 
program activity. In addition, of the 11 participating federal 
agencies, our Department contributes the second largest amount of SBIR 
and STTR funding. In fiscal year (FY) 2003, the NIH SBIR/STTR budget 
was about $557 million. However, NIH chose to invest more than the 
minimum statutory requirement, resulting in actual obligations of $564 
million. NIH made about 2000 SBIR awards (grants and contracts) 
amounting to $533 million and 152 STTR awards amounting to $31 million. 
The State of Texas received a total of 81 SBIR awards (amounting to 
$19.1 million) and seven STTR awards (amounting to $2.0 million) in FY 
2003. Of these, Dallas received six SBIR grant awards and one STTR 
award, totaling nearly $1.4 million. In FY 2003, about 24 percent of 
all Phase I SBIR applicants and 44 percent of all Phase II SBIR 
applicants were funded; 27 percent of Phase I STTR and 43 percent of 
Phase II STTR applicants received awards.

Role SBIR and STTR Plays in the NIH Research Agenda

    The NIH mission is to uncover new knowledge that will lead to 
better health for everyone. In the course of that mission, NIH uncovers 
new knowledge about the prevention, detection, diagnosis, and treatment 
of disease and disability through the support and conduct of biomedical 
and behavioral research. The SBIR Program, first authorized in 1982, 
and the STTR Program, authorized in 1992, play a role in the NIH 
scientific research and development (R&D) arena. Through a competitive, 
three-phase award system, the Program provides qualified small business 
concerns with opportunities to propose and develop innovative ideas. 
The Program encourages small businesses to explore their technological 
potential and provides the incentive to profit from commercialization 
of federally-funded R&D projects.
    The SBIR and STTR programs, now more than 20 years old, have become 
fully integrated into the overall scientific programs and goals of the 
NIH. The SBIR and STTR programs help accomplish the NIH mission to 
improve human health--particularly in the goal of translating 
scientific findings and advances from the ``test tube to the medicine 
cabinet'' as well as through the development of innovative products or 
services that speed the process of discovery, reduce the cost of 
medical care, and improve research tools.
    We have watched the program evolve through stages of infancy when a 
Phase I award was $50,000 for six months, through some trials and 
tribulations of adolescence, and into a mature, yet invigorated 
program. The NIH continues to serve the legislative intent of 
stimulating technological innovation in the small business research 
community as well as enhancing collaborative efforts with the academic 
research community. In addition, we strive to foster and encourage the 
participation of women, minority and disadvantaged persons in this 
program, improve the Federal Government's dissemination of information 
about the SBIR program, and increase the private sector's 
commercialization of technology developed through federal R&D.

Types of Research NIH Supports Under SBIR and STTR

    NIH has 23 Institutes and Centers that participate in the SBIR/STTR 
Program. Each of these awarding components has a research mission with 
well-defined priorities that address science and health from a specific 
perspective, disease area (e.g., cancer) or area of concern (e.g., 
aging). Given 23 different awarding components, it is not difficult to 
imagine the breadth and depth of science that NIH supports. Some of the 
topic areas identified in our grant solicitation include, but are not 
limited to, biodefense, biosensors, nanotechnologies, bioinformatics, 
imaging technologies, bioengineering, behavioral research, 
computational biology, telehealth technologies, and proteomics/
genomics. While we issue solicitations for projects on specific topics 
relevant to each Institute and Center (IC), we also encourage small 
businesses to propose investigator-initiated, mission-related and 
commercially-viable research ideas. Investigator-initiated ideas are 
the cornerstone of the NIH research portfolio, including projects 
supported by the SBIR/STTR programs.

Seven Effective Steps to Obtain an SBIR or STTR Award

    A company must take several steps to obtain an SBIR/STTR award:

        1)  Start with an innovative idea with commercial potential.

        2)  Understand our agency's mission and areas of research we 
        support. These are described in the grant and contract 
        solicitations and on the websites of the NIH ICs.

        3)  Contact relevant program staff to discuss the project and 
        identify a potential ``fit'' in an IC's programmatic area.

        4)  Submit an application for scientific and technical merit 
        review.

        5)  Discuss with program staff the outcome of the review and 
        obtain guidance for next steps.

        6)  Meet the eligibility criteria for a small business concern 
        as defined by the Small Business Administration.

        7)  Demonstrate research integrity.

Features That Distinguish the NIH SBIR/STTR Programs From Those at 
                    Other Agencies

    There are several features that distinguish the NIH SBIR and STTR 
Programs from those at other agencies. These features are primarily a 
result of the degree of flexibility that the Small Business 
Administration (SBA) has provided to permit functional accommodations 
to support each agency's mission outcomes.

Award amounts and project periods. What have made our Programs so 
appealing are the opportunities for firms to propose R&D projects with 
truly revolutionary outcomes rather than restrict their ideas to 
projects that can only be conducted under a prescribed amount of time 
and money. Our experience is that the conduct of certain types of 
biomedical and behavioral research, such as nanotechnology, clinically-
related studies, vaccine development, and drug discovery does not 
routinely lend itself to prescribed maximum time and dollar levels. 
These are exceptions, but such projects can be important steps in 
integrally involving small businesses in some of the most exciting, 
cutting-edge research. The latitude supported by the SBA encourages 
companies to propose R&D in fields that have the most biological 
promise.

Submission dates and amended applications. Other distinguishing 
features of the NIH SBIR/STTR Programs relate to ``closing'' or 
submission dates and amended applications. NIH offers multiple 
submission dates through the calendar year. In addition, an applicant, 
if unfunded, may submit up to two revised applications on any of the 
three submission dates. Entrepreneurs innovate constantly, so in an 
effort to foster technological innovation, we provide opportunities 
throughout the year, a minimum of three dates, for small businesses to 
submit a new or revised Phase I (feasibility study) or a Phase II (full 
R&D project) application.

Gap funding options. Another feature that distinguishes NIH form other 
SBIR/STTR agencies concerns the lag time that typically occurs between 
Phase I and Phase II, and between Phase II and Phase III. To address 
one of the most difficult issues faced by researchers in the small 
business community, namely the gap in funding between Phase I and Phase 
II, we offer a Phase I/Phase II Fast-Track review option in which 
applicants submit a Phase I and Phase II simultaneously for concurrent 
review. We realize that the Fast-Track mechanism is not appropriate for 
all applicants or for all types of research. Therefore, NIH offers 
alternative avenues such as no-cost award extensions, supplemental 
awards, and most recently, competing continuation awards, all of which 
provide bridge funding between the phases. Examples of projects that 
would benefit from uninterrupted funding include those that involve 
maintenance of transgenic mice colonies or newly established cell lines 
and those that include pre-clinical or clinical trials necessary to 
generate data for FDA approval.

Common Strengths and Weaknesses in SBIR/STTR Applications

    All NIH grant applications undergo an external peer review process 
involving two sequential steps that are required by law. The first step 
is performed by Scientific Review Groups, composed primarily of non-
federal scientists, physicians, and engineers (from academia and 
industry) selected for their expertise and stature in particular 
scientific fields. The second step is performed by the National 
Advisory Council or Board of the potential awarding component to which 
the grant application is assigned. Applicants receive a written summary 
of the deliberations of the peer review. These analyses are very useful 
in pointing out the strengths and weaknesses of the proposed research. 
Some of the most common weaknesses can be categorized in the following 
areas:

          Lack of innovation

          Inadequately defined test of feasibility

          Unconvincing case for commercial potential and 
        societal impact

          Diffuse, superficial, or unfocused research plan

          Lack of sufficient experimental detail

          Questionable reasoning in experimental approach

          Failure to consider potential pitfalls and 
        alternatives

          Lack of experience with essential methodologies

          Unfamiliarity with relevant published work

          Unrealistically large amount of work proposed

    Turning those weaknesses around, common strengths include projects 
that are truly innovative and have strong commercial potential and 
societal import, those that include a clear feasibility test as well as 
realistic and achievable milestones, and those that have a clearly 
conceived experimental approach that includes sufficient experimental 
detail, alternative strategies, and appropriate facilities and 
expertise to conduct the proposed research.

Effectiveness of the NIH SBIR and STTR Program

    We are pleased that reports issued previously by the General 
Accounting Office and the Small Business Administration indicate that 
the NIH SBIR program has one of the highest rates of commercialization. 
Results of a recent study commissioned by our agency to evaluate the 
NIH SBIR Program indicate that through the SBIR Program, small 
businesses have contributed to the NIH mission of improving human 
health through biomedical and behavioral research, while enhancing the 
commercial potential and societal import of their technological 
innovations. The National Survey to Evaluate the NIH SBIR Program 
Report (PDF) and Appendices (PDF) detail the study and include program 
results from companies that received Phase II awards between 1992 and 
2001. Seven hundred sixty-eight SBIR awardees participated in the 
study, describing their experiences with the SBIR program and their 
project outcomes. Even those projects that have not realized the goal 
of commercialization have generated information for the equally 
important purpose of contributing to the knowledge base of science 
through peer-reviewed publications. A few results of that study are 
worth highlighting:

          Eighty-seven percent of the awardee respondents 
        reported producing 670 new or improved products, processes, 
        usages, and/or services in support of the NIH mission.

          Technological achievements also included 2,20$ 
        technical articles, 666 patents, 2,850 conference 
        presentations, 453 copyrights, 252 awards, and 322 trademarks.

          Fifty-two percent of awardees received 1,465 
        additional Phase I or Phase II awards related to continued 
        development and exploitation of their core technology. Of the 
        399 awardees who won additional SBIR awards, 40 percent also 
        received non-SBIR funding.

          Eighty-six percent reported success in disseminating 
        SBIR supported technology and information among populations 
        using and receiving health and health care resources.

          Seventy-three percent of awardee respondents reported 
        commercializing new or improved products, processes, usages, 
        and/or services in health-related fields.

          Other evidences of commercialization include 48 drugs 
        and medical devices receiving FDA approval, 281 awardees 
        receiving additional funding from non-SBIR sources, and 436 
        having ongoing or completed marketing activities.

    While commercialization is an important goal and outcome to SBIR/
STTR, it is also important not to overemphasize commercialization. 
There is an element of risk associated with projects funded in the SBIR 
and STTR Programs. The nature of biomedical and behavioral research is 
changing and becoming more complex and multidisciplinary. Considering 
that the eleven federal agencies that participate in the SBIR/STTR 
programs have very different R&D needs, NIH appreciates the flexibility 
that these programs offer to allow funding for bath projects that will 
have near-term commercial potential and those that are far more 
complex, high-risk or longer-term.
NIH Efforts to Enhance and Streamline SBIR/STTR Programs
    NIH has taken steps to enhance and streamline the programs, 
particularly with regard to bridging the gap between Phase II and Phase 
III, tracking Program outcomes, and enhancing our outreach efforts.

Bridging the gap between Phase II and Phase III. Certain types of 
biomedical and behavioral research require clinical evaluation and 
federal regulatory approvals before Phase III (commercialization stage) 
can ever be realized. NIH offers an opportunity to eligible Phase II 
awardees to seek competing continuation Phase II awards for projects in 
which the conduct of clinical investigations and federal regulatory 
approvals will ultimately be required to realize the potential of the 
product being researched and developed. A recipient of an NIH SBIR/STTR 
Phase I and Phase II award normally receives no more than $1 million 
and three years of support. If the intended commercialized product is a 
medical device, drug or biologic, this amount often represents a small 
fraction of the funds necessary to complete the studies required for 
approval and licensing by the Food and Drug Administration (FDA) or 
other federal agencies. Yet, the process of moving promising new 
products from bench to bedside typically takes more than a decade. 
These are precisely the products with potential to contribute 
significantly to the economy of the Nation and to the health of our 
nation. It is the intent of the SBIR and STTR Phase 11 competing 
continuation grants to support such research and development.

Tracking Program Outcomes. With the completion of the 10-year 
retrospective study of the NIH SBIR Program, we are looking forward to 
the development of a dynamic project monitoring system to track 
outcomes from supported projects. Such a data tracking system will 
enable NIH administrators to better determine the outputs and outcomes 
from projects supported through the SBIR and STTR mechanisms. Clearly, 
commercialization is a major goal of the SBIR and STTR Programs. 
However, for NIH awardees, there is often a lengthy time of seven to 
ten or even 12 years before commercialization is realized, a period 
that routinely extends well beyond NIH support. Thus, commercialization 
may be one metric for judging program success, but other measures will 
be considered as indicators of success, such as published papers, 
patents, FDA testing/approvals of drugs and devices, and the use of the 
technology in other research projects.

Enhancing our Outreach Efforts. Communication is ate essential element 
of the NIH application, review and award process. Indeed, it is the 
common thread that runs through the seven steps a company needs to take 
to obtain an SBIR or STTR award. NIH is making efforts to enhance small 
business competitiveness through numerous grant writing seminars 
throughout the year. We recently provided such a seminar for a rapidly 
growing organization called ``Women Entrepreneurs in Science and 
Technology.'' NIH also participates in the National SBIR/STTR 
Conferences, at least one of which is annually held in a rural state or 
a state that has not received a large share of SBIR/STTR funding. 
Proposal writing workshops are frequently offered as pre-conference 
sessions at these meetings. On June 23-24, 2004, NIH will host its 6th 
Annual SBIR/STTR Conference at which over 900 attendees axe expected. A 
major feature of this conference is a grant writing session dedicated 
to assist potential applicants in preparing a competitive application.
    In addition, NIH staff routinely participate in regional and state-
wide conferences to provide information about the NIH application, 
review and award processes and potential funding opportunities. Last 
June, NIH and about three other agencies participated in the SBIR/STTR/
ATP Workshop in Dallas, an event attended by about 140 participants. We 
are looking forward to a similar event in Dallas to be held May 2004.
    In response to the heightened interest of research institutions to 
learn more about the SBIR and STTR Programs, we have incorporated 
sessions focused on university-industry partnership opportunities. We 
will continue our efforts to raise awareness in States, and research 
institutions within them, to promote the SBIR and STTR Programs. Broad 
dissemination of information about these Programs is also being 
accomplished through an NIH SBIR/STTR ListServe message system, 
encompassing over 11,000 subscribers from the small business community, 
academia, State entities, professional societies, and others. NIH 
established a separate ListServe of SBIR and STTR awardees to inform 
them of important grant-related policies and procedures.
    In recent years, many of the agencies participated in a multi-state 
outreach endeavor called ``SWIFT: SBIR--Where Innovation Focuses 
Technology.'' The Federal Program managers traveled by bus, moving to a 
new State each day, to inform small businesses and research 
institutions of STTR and SBIR funding opportunities. The first year, 
SWIFT I ``Field of Dreams'' tour focused on the Midwest states. In 
2001, the SWIFT II ``Patriot'' tour focused on northeast states. SWIFT 
III, held in May 2002, kicked off in Texas and moved eastward through 
the southern states. Most recently, the SWIFT IV tour visited states in 
the upper northwest region of the country. This year, September 2004, 
SWIFT V is expected to tour the States of Michigan, Indiana, Illinois, 
Missouri, Tennessee, and Kentucky. We are beginning to see the fruits 
of these outreach endeavors reflected through higher quality 
applications and increased submissions and awards.

NIH SBIR/STTR Success Stories

    A number of NIH SBIR and STTR projects have resulted in significant 
improvements to our nation's health and in increased productivity of 
other researchers. I would like to describe several successes in 
particular that exemplify the kind of SBIR/STTR research NIH supports.

Optiva Corporation (WA)
    Looking back more than 20 years to one of the earliest SBIR 
projects that NIH supported, funding allowed Optiva Corporation to 
develop a novel power toothbrush, the Dentifrice Dispensing Sonic 
Brush, which we have come to know as the ``Sonicare'' toothbrush. In 
addition to the health benefits, this project resulted in a $300 
million business and the creation of over 500 jobs. Optiva was sold to 
Philips Electronics in 2000.

Plexon Inc. (Dallas, TX)
    Plexon Inc. (formerly Spectrum Scientific, a proprietorship), 
founded in 1984, supplies tools for basic brain and nervous system 
communication research, neural biosensors for drug and environmental 
screening, brain-machine interfaces, and neuroprosthetics for the 
growing neurotechnology industry. Plexon received Phase I and Phase II 
SBIR funding (1989-1993) from the NIH (National Institute of 
Neurological Disorders and Stroke) to develop an automated procedure 
for detecting and separating extra-cellular neural action potentials 
(spikes) in real time. These SBIR awards enabled Plexon to develop a 
unique neural data acquisition system far beyond anything previously 
attempted at the time. Such an accomplishment has applications to aid 
physically impaired individuals.
    As shown in the diagram below, individual electrodes implanted in 
the brain or mounted in a brain slice culture chamber often detect 
spikes from multiple neurons. Each neuron generates characteristically 
distinct spike waveform shapes. Plexon's hardware and software 
solutions use advanced pattern recognition and cluster analysis 
algorithms to discriminate and assign individual waveforms to specific 
neurons. In addition to providing insight into basic brain function, 
this technology has broad implications in the development of interfaces 
for direct brain-machine communication and prosthetic devices for 
nervous system-impaired individuals.




    By 1995, Plexon had delivered about 10 systems with most sales to 
neurophysiologists studying learning, memory, and motor behavior in the 
nervous system of animals. Up to this time the average number of 
employees at Plexon was three. Interest in the Multichannel Acquisition 
Processor (MAP; product name) data acquisition system started to grow, 
and by 1999 the number of installed systems world-wide reached 60.
    Today, Plexon employs 20 people and sales have reached the $3M/year 
mark. Plexon has grown from a small one-person company to a highly 
focused team of engineers, biophysicists, and neuroscientists with R&D 
and technical expertise. Plexon's customers include over 75 domestic 
and international academic research labs, research hospitals, 
pharmaceutical companies, and military research labs. The company was 
recently named as a participant of a $26 million contract to Duke 
University by the Defense Advanced Research Projects Agency (DARPA) for 
the development of next-generation brain-machine interface technology. 
Joint R&D activities are also being conducted with the University of 
North Texas, California Institute of Technology, Massachusetts 
Institute of Technology, Vanderbilt University, University of Michigan, 
Oregon Health & Science University, and others. Company president, 
Harvey Wiggins, notes, ``We have funded our own growth from sales and 
never used VC or other equity funding. The number of installed systems 
is above 250. Plexon is the primary brain interface equipment supplier 
to the major neuroprosthetics research groups in the U.S.''

NanoMatrix Inc. (Dallas, TX)
    NanoMatrix Inc. and collaborators at Virginia Commonwealth 
University have received SBIR funding from NIH to use a process called 
electrospinning to produce a biological and biochemical environment 
that biomimics that found in normal tissues and organs. The Company's 
core technology of electrostatic spinning of connective tissue proteins 
is aimed at mimicking the three dimensional architectural structure 
that is essential for the body's natural growth and repair processes. 
For example, Dr. Gary Bowlin, bioengineer at VCU notes that ``patients 
do not always have spare veins for bypass surgery, and even when they 
do, complications can arise due to rejection. What is needed is an 
``off-the-shelf' blood vessel of known size and characteristic. The new 
technology would enable natural human blood vessels to be grown from 
collagen. Collagen is a natural substance in the body, so cells are in 
a happy environment and start to grow.'' The technology was licensed to 
NanoMatrix for further development. In addition to the cardiovascular 
applications, this potentially revolutionary technology offers numerous 
other possibilities--for diabetic patients who often lose blood vessels 
due to vascular disease, for skin replacement, and for bone 
regeneration. The following link provides a video that demonstrates the 
potential of this technology for living coronary artery: http://
www.nanomatrix.biz/demo.asp




MicroFab Technologies, Inc. (Plano, Texas)
    MicroFab Technologies, Inc. has used SBIR funding to develop and 
commercialize new technology aimed at enabling high-payoff applications 
for microdispensing and precision printing of bioactive materials (DNA, 
proteins, reagents) and other materials used in biomedical device and 
diagnostics manufacturing. The figures below illustrate biosorbable 
polymer conduits for nerve regeneration (1mm diameter) and 1mm 
stainless steel tubes that mimic stents (for cardiac artery implant) 
printed with a polymer/drug coating (fluorescent die used). SBIR 
funding from NIH and other federal agencies has led to both direct and 
indirect commercialization of biomedical applications. Direct 
commercial success includes sales of equipment for DNA array 
manufacturing and instrumentation for proteomic discovery. Indirect 
commercialization success includes application of equipment and 
processes developed in a tissue engineering project (nerve regeneration 
conduits) to coating of stents with polymers and drugs for six 
commercial companies.






Conclusion

    Thank you for the opportunity to describe how NIH has utilized the 
Programs and benefited from them. I would be pleased to answer any 
questions you may have.

                    Biography for Jo Anne Goodnight

    Ms. Goodnight currently holds the position as the Small Business 
Innovation Research (SBIR) and Small Business Technology Transfer 
(STTR) Program Coordinator of the National Institutes of Health (NIH) 
and the Department of Health and Human Services (DHHS) Public Health 
Service. She has held this position, which is located in the NIH Office 
of Extramural Research (OER), Office of the Director, since March 1999. 
Prior to joining OER, she served in positions encompassing research, 
program administration and program management. During nearly 20 years 
of Government service she has held positions in the U.S. Department of 
Agriculture (USDA), the Food and Drug Administration, and now the NIH. 
As part of her Virginia Tech education (1978-1983), she spent four 
years conducting research as a Cooperative Education student at the 
USDA's Animal Parasitology Institute. While at NIH, she has been a part 
of the National Cancer Institute's (NCI) Intramural Research Program as 
a research scientist (1989-1994) and the NCI's Extramural Research 
Program (1994-1999). As an intramural scientist, she published over 20 
studies about the selective involvement of Protein Kinase C in 
differentiation and neoplastic transformation. She joined the NCI's 
Extramural Research Program in 1994 where she served as a Special 
Assistant to the Director, Division of Cancer Biology and Program 
Director for SBIR/STTR grants that supported studies in the field of 
cancer biology, cancer genetics, and cancer immunology as well as the 
SBIR/STTR Program Policy Coordinator for the entire NCI. She was 
appointed as the NIH SBIR/STTR Program Coordinator in 1999 where she 
continues today.
    She was intimately involved in the development and implementation 
of the NIH SBIR/STTR Fast-Track Program and continues to develop other 
programs that assist the small business community in commercialization 
of their technologies. She has been an invited participant in numerous 
SBIR/STTR Conferences to discuss funding opportunities for small 
businesses through the NIH. She also has provided written and oral 
testimony at Congressional hearings related to the reauthorization of 
the SBIR and STTR Programs.
    Ms. Goodnight has received several national awards including an NIH 
Merit Award (1998) for her ``exemplary contributions in the 
administration and coordination of the extramural research programs of 
the Division of Cancer Biology,'' a Tibbetts award (2002) from the 
Small Business Administration for her ``leadership role in making the 
SBIR and STTR programs more accessible, more relevant, and more 
effective,'' and an NIH Merit Group Award (2003) in ``recognition of 
outstanding performance and service to the National Heart Lung and 
Blood Institute's SBIR Evaluation Group.''
    Ms. Goodnight received a Bachelor of Science degree in Microbiology 
from Virginia Tech in 1983.

    Chairman Smith. Thank you.
    Dr. Feng, good to see you.

STATEMENT OF DR. DA HSUAN FENG, VICE PRESIDENT FOR RESEARCH AND 
 GRADUATE EDUCATION, PROFESSOR OF PHYSICS, UNIVERSITY OF TEXAS 
                           AT DALLAS

    Dr. Feng. Chairman Smith and Congresswoman Eddie Bernice 
Johnson, first I want to commend you for the leadership of 
bringing SBIR and STTR so much on the radar screen for the 
region. I'm also honored to be invited here.
    The University of Texas of Dallas aims to be a regional and 
national economic engine, with strengths in intellectual 
information technology, nano technology, biotechnology, 
especially brain research and sickle cell research, which 
Congresswoman Eddie Bernice Johnson has played an enormous role 
in assisting us in building that program.
    It is also geographically situated in one of the most 
technological centers and economical volatile regions of the 
United States at the moment, the Dallas-Fort Worth region. 
Therefore, as a member of the UTD's Senior Management Team, it 
cannot be more timely for me to participate in this hearing on 
a subject with obvious and enormous impact, to say a few words 
about it, and to learn from my colleagues and from you.
    I also want to specifically, since I see there are many, 
many small company executives here, I would like to welcome you 
to communicate with me to see how the University of Texas at 
Dallas, who has been very enthusiastic about working with you, 
like the way you have been working with Polatomic, so that we 
can go on with developing more economic prosperity around this 
region.
    Mr. Chairman, it has often been stated that the economic 
livelihood of our nation lies in small businesses. Time and 
again, small businesses were the source of innovation agility. 
One simply cannot take small businesses for granted when 
talking about economic development.
    Mr. Chairman, I have also often said, and I cannot recall 
who was the first who say that, that vision without funding is 
hallucination. The very first barrier that these small 
technological businesses encounter would be to find suitable 
funding. In principle, they could seek venture capital or angel 
funding, or any kind of business venture funding, this is at 
best an arduous search for start-up small companies who need 
research dollars. This is why SBIR and STTR are so critical.
    From a research university perspective, suitable 
collaborations between industry and university partners have 
long been understood as being critical to the ongoing success 
of universities. What is only recently being understood is that 
the powerful potential of partnering with small businesses, as 
defined as having fewer than 500 or 400 employees, with 
universities and SBIR and STTR programs.
    As Vice President for Research at one of the fastest 
growing research universities in the Metroplex, I am immensely 
pleased to say that nowadays there is more and more recognition 
of this collaborative potential among my colleagues within the 
university.
    Mr. Chairman, the telecom business in the `90's was 
certainly an economic boom for the region, a significant 
fraction of our most scientifically and technologically 
talented manpower worked for many of the powerful mega and 
international telecommunication companies in the Metroplex. 
Since this implosion in 2001, many of these talented 
individuals had to find ways to sustain their livelihood, for 
those who continued and probably struggled to remain in the 
region many managed to form start-up companies. It is probably 
a cruel fact of life that the downturn of the telecom economy 
also means that the expertise of these talented individuals 
that accumulated while working for the mega companies was 
perceived to be of little or no direct economic values.
    And, Mr. Chairman, we all know that perception is reality 
in the real world. Hence, the successful ones tends to leverage 
the expertise to significantly add values to the other 
businesses and other industries. Obviously, to do so they 
needed to be in a research collaboration with individuals who 
have different expertise and who can do many of the laboratory 
studies which small start-up businesses will have a difficult 
time in accomplishing.
    One source of such research talents clearly lies in 
research universities. Mr. Chairman, it is for this simple fact 
that made small business and research universities such good 
partners, and I, as Vice President for Research, am committed 
to bring this about as much as I can.
    As I mentioned earlier, the ability of research 
universities to act as partners to small companies gives 
students and faculty an opportunity to explore possibilities 
for products or ideas developed by small companies. The idea 
that Polatomic has been on campus for over 15 years has been an 
enormous intellectual source for our faculty and for our 
university in general.
    While a small company is certainly capable of doing of this 
research, it is more cost effective and intellectually exciting 
to partner with outstanding university researchers who also 
have access to brilliant young minds called graduate students.
    The SBIR grants are an invaluable way for small businesses 
looking to develop these partnerships, because they provide the 
economic ability to continue research with the assistance and 
resource of a university.
    Finally, Mr. Chairman, the SBIR and STTR provide many 
powerful opportunities to small businesses. The program can 
find early-stage development projects that might otherwise not 
get funding, as well as an option to research ideas, reduce the 
risk, and to gather the data, test information needed to 
attract venture capital funding eventually.
    A university can provide valuable assistance to small 
companies in making both of these objectives a reality. The 
companies are strengthened for the work the universities do, 
and the universities are strengthened because the students and 
faculty get a chance to do a variety of diverse and 
intellectually-exciting and challenging projects.
    Thank you, Mr. Chairman.
    [The prepared statement of Dr. Feng follows:]

                  Prepared Statement of Da Hsuan Feng

Chairman Smith and Congresswoman Eddie Bernice Johnson:

    First, I want to commend you for your leadership. I also am honored 
to be invited here today to give a testimony about SBIR and STTR. The 
University of Texas at Dallas aims to be a regional and national 
economic engine. It is geographically situated in one of the most 
technological-centric and economic volatile regions of the United 
States, the Dallas-Fort Worth Metroplex. Therefore, as a member of 
UTD's Senior Management team, it cannot be more timely for me to 
participate in this hearing on a subject with obvious and enormous 
impact, to say a few words about it and to learn from my colleagues and 
from you.
    Mr. Chairman, it has often been stated that the economic livelihood 
of our nation lies in ``small businesses.'' Time and time again, small 
businesses were the source of innovation agility. One simply cannot 
take small businesses for granted when talking about economic 
development.
    From a research university perspective, sustainable collaborations 
between industry and university partners have long been understood as 
being critical to the ongoing success of universities. What is only 
recently being understood is the powerful potential of partnering small 
businesses--as defined as having fewer than 500 employees--with 
universities and the Small Business Innovation Research (SBIR) and 
Small Business Technology Transfer (STTR) programs. As Vice President 
for Research of one of the fastest growing research universities in the 
Metroplex, I am immensely pleased to say that nowadays there is more 
and more recognition of this collaborative potential.
    Mr. Chairman, the telecom business of the Nineties was certainly an 
economic boom for our region. A significant fraction of our most 
scientifically and technologically talented manpower worked for many of 
the powerful mega- and international telecommunication companies in the 
Metroplex. Since its implosion in 2001, many of these talented 
individuals had to find ways to sustain their livelihood. For those who 
continued, and probably struggled, to remain in the region, many 
managed to form startup companies.
    It is probably a cruel fact of life that the downturn of the 
telecom economy also means that the expertise of these talented 
individuals that accumulated while working for the mega-companies was 
perceived to be of little or no direct economic values (and Mr. 
Chairman, we all know that ``perception is reality'' in the real 
world!). Hence, the successful ones tend to leverage their expertise to 
significantly add values to other businesses. Obviously, to do so, they 
needed to be in research collaboration with individuals who have 
different expertise and who can do many of the laboratory studies which 
small startup businesses will have a difficult time accomplishing. One 
source of such research talents, clearly, lies in research 
universities. Mr. Chairman, it is for this simple fact that made small 
businesses and research universities such good partners.
    Mr. Chairman, I have often said (and I cannot recall who was the 
first to say this) that ``VISION WITHOUT FUNDING IS HALLUCINATION.'' 
The very first barrier these small technological businesses encountered 
would be to find suitable FUNDING. In principle, they could seek 
Venture Capital (VC) or Angel Funding, or any kind of ``business 
venture'' funding. This is at best an arduous search for startup small 
businesses who need ``research dollars.'' This is why SBIR's and STTR's 
are so critical.
    As I mentioned earlier, the ability of universities to act as a 
research partner to small companies gives students and faculty an 
opportunity to explore possibilities for a product or idea developed by 
a small company. While a small company is certainly capable of doing 
some of its research, it is much more cost-efficient, and 
intellectually exciting to partner with outstanding university 
researchers, who have access to brilliant young minds (call graduate 
students). The SBIR grants are an invaluable way for small businesses 
looking to develop those partnerships because they provide the economic 
ability to continue research with the assistance and resources of a 
university.
    During the fiscal year 2002, fewer than 20 companies in North Texas 
applied for SBIR grants--540 grants with a total of $106,844,952--were 
awarded to Texas companies. In contrast, 2,394 grants, with a total of 
$598,525,294, were awarded in California. This contrast suggests a lack 
of understanding in the program by Texas small businesses. As small 
business becomes familiar with many advantages of the SBIR program, 
universities will be able to use their research talents to assist small 
businesses and make them more economically viable while strengthening 
the educational opportunities of both faculty and students.
    Finally, Mr. Chairman, the SBIR and STTR provide many powerful 
opportunities to small businesses. The program can fund early stage 
development projects that might otherwise not get funding as well as an 
option to research ideas, reduce the risk and to gather the data/test 
information needed to attract venture capitalist funding. A university 
can provide valuable assistance to small companies in making both of 
those objectives realities. The companies are strengthened for the work 
the universities do and the universities are strengthened because the 
students and faculty get a chance to do a variety of diverse projects.

                      Biography for Da Hsuan Feng
Vice President for Research and Graduate Education and Professor of 
        Physics, University of Texas at Dallas

    After completing his elementary and secondary education in the 
Republic of Singapore, Dr. Feng received his undergraduate education 
from Drew University in New Jersey and doctorate in Theoretical Physics 
from the University of Minnesota. Prior to joining the Physics 
Department of Drexel University in 1976, where he eventually became the 
M. Russell Wehr Professor of Physics, he was a United Kingdom Science 
Research Council fellow at the Department of Theoretical Physics of the 
University of Manchester (1972-74) and a Senior Scientist at the Center 
for Nuclear Studies of the University of Texas at Austin (1974-76). 
During his tenure at Drexel University, he served for two years as 
Program Director of Theoretical Physics at the National Science 
Foundation (1983-85) and visiting Professor of the Niels Bohr Institute 
of the University of Copenhagen (1979-80).
    Feng is an expert in mathematical physics, nuclear physics, nuclear 
astrophysics, quantum optics, fundamental issues of quantum mechanics, 
network architecture and computational physics. He has been a 
consultant to the theoretical physics groups of Los Alamos National 
Laboratory, Oak Ridge National Laboratory, Brookhaven National 
Laboratory and United Kingdom's Daresbury Laboratory.
    In 1997-1998, Feng served as technical advisor to Congressman Curt 
Weldon, currently Vice Chair of the House Armed Services and senior 
Member of the House Science Committee, regarding South Africa, Central 
Europe, (especially Hungary) and China. He was a member of the 
Congressional Delegation to East Asia (January and March of 1997) and 
Central Europe in December of 1999.
    From April of 1998 until December of 2000, he was on leave-of-
absence from Drexel University to serve as the Vice President and HUBS 
(Hospitals, Universities, Businesses and Schools) General Manager of 
Science Applications International Corporation (SAIC), a multi-
national, $6.1 billion and 41,000 employees Fortune 500 high technology 
company.
    From 1998-2000, Feng worked on the HUBS project. The HUBS project 
was inspired by the political leadership of the ``Four States'' 
(Delaware, New Jersey, Maryland and Pennsylvania) and is designed to be 
the catalyst and the integration of information systems in that region. 
From FY98 to FY03, the project received over $60 million of federal 
funding.
    On December 9, 2000, Feng resigned from both Drexel University and 
SAIC to assume the position of Vice President for Research and Graduate 
Education and Professor of Physics at the University of Texas at 
Dallas.
    Feng's objective at the University of Texas at Dallas, as 
designated by the President and the Provost, is to rapidly build the 
research breath and depth of the University. As the first VP for 
Research and Graduate Education, Feng devised the following mission 
statement for his position:

         ``The Office of the Vice President for Research and Graduate 
        Education of the University of Texas at Dallas (UTD) identifies 
        areas of intellectual importance, promotes the university as an 
        economic and innovation engine as well as further activates 
        UTD's development as a world class university. In addition, the 
        office promotes the university's ``knowledge'' products and 
        collaborates synergistically with local, regional, national and 
        international corporations and governments to enhance the 
        global vision and impact of science and technology.''

    The goal is to drive the University to be a major international 
research University. Taking into account the size of UTD and resources, 
he articulated three concentrations of excellence for UTD in this 
decade: digital communications, advanced materials and instrumentations 
and last but not least, disease centric post genomic research.
    Feng is responsible for successfully recruiting and securing the 
funds for the James Von Ehr Distinguished Chair in Science and 
Technology for Dr. Alan MacDiarmid, the 2000 Nobel Laureate in 
Chemistry. He also painstakingly recruited the nanotechnology research 
team of Honeywell Corporation in New Jersey. This team is now the 
backbone of UTD's rapidly growing nanoscience program. In addition, 
Feng also initiated a SPRING (Strategic Partnership of Research in 
Nanotechnology) project, which linked together, besides UTD, Rice 
University, the University of Texas at Austin, the University of Texas 
at Arlington. For FY03 and FY04, Feng worked closely with the 
Congressional delegation of Texas to secure $6 Million and $10 Million, 
respectively, for SPRING funding. He also founded the Medical Device 
Action Group, a regional effort to promote interdisciplinary research 
in this technological arena. Research funding for UTD increased from 
$16 Million to $28 Million during the past three years.
    Very recently, he recruited Dr. Russell Hulse, Nobel laureate in 
physics in 1993, as a Visiting Professor of science and technology to 
UTD.
    Feng has published more than 190 scientific papers, edited more 
than 20 books, mentored five Ph.D. students and four post-doctoral 
fellows, and served as editor of four scientific journals.
    Feng's other professional affiliations include:

          Past-President of Monte Jade Science and Technology 
        Association of Mid-Atlantic States, a rapidly growing chapter 
        of a national organization of Chinese Americans entrepreneurs, 
        with over 300 multi-national corporation as members

          Business Board Chairman of D'Trends Inc,, a leading 
        Bio-informatics company in San Ramon, California

          Special advisor to the Editor-in-chief of Korean 
        American Science and Technology Network (which is read by 
        15,000 Koreans globally)

          Member of the Industrial Advisory Board of the 
        Interactive Multimedia Intelligent Tutoring Center of Temple 
        University

          Former member of the Computer Science/Engineering 
        Technical Evaluation Advisory Task Force of the Provost and 
        President of the University of South Carolina

          Former member of the United States Department of 
        Education (2000) Field Initiated Studies Technology Panel

          Special advisor to the Greater Philadelphia 
        Association of Chinese Computer Professionals, a fast growing 
        association of this community in the region

          Past Vice Chairman of the Board of CyberFone Inc.

          Board member of the Texas Nanotechnology Initiative

          Vice Chairman of the Board of the Alan G. MacDiarmid 
        Institute of Jilin University

          Advisor for the National Engineer Week Asian American 
        Award Banquet (Feb. 23, 2002, Dallas)

          Honorary Advisor of the Chinese Institute of 
        Engineers/USA-DFW and Association of Chinese Professionals 
        (DFW)

          Honorary/Guest professor of Jilin University, Fudan 
        University, Lanzhou University, Southwest Jiaotong University, 
        Nanjing University

          Honorary Research Fellow of the Institute of Nuclear 
        Research (Shanghai)

          External Advisory Board of the Chinese Institute of 
        Engineers/USA-GNYC

          Technical Advisory Board, Taiwan Nanotechnology 
        Initiative

          Serve as the University Coordination Co-chair for the 
        Space and Missile Defense Command Technology Center in 
        Huntsville, Alabama.

          Science Advisor to New Economy Strategies

          Member of the International Advisory Committee of 
        International Conference on Advanced Materials for Technologies 
        2003

          Member of the International Organizing Committee of 
        the International Conference on Physics Education & Frontier 
        Research 4th OCPA Joint Meeting of Chinese Physicists World-
        Wide

          2003 Member of the University of Texas Chancellor's 
        Higher Education Act Working Group

          Chairman of the ``Ad Hoc Southern United States 
        Action Committee to Assist Chinese People to Fight Against 
        SARS''

          Vice President (for North America) of the American 
        Europe Academy of Sciences

          DFW MIT Forum Advisory Board member

          International Steering Committee (ISC) of 
        International Network for Engineering Education and Research 
        (iNEER)

          Member of the Scientific Board of Advisors of Genesis 
        Campus, an accelerator and early stage venture capital firm

    Recent awards include:

          In 1996, Feng was elected ``Fellow of the American 
        Physical Society'' ``For outstanding contributions to the 
        understanding of nuclear structure physics, particularly for 
        the applications of the coherent states to physics and nuclear 
        physics''

          Distinguished Friend of Chung Yuan Christian 
        University (Taiwan)

          1999 Millennium Award for Vision and Leadership in 
        Technology, TechFEST '99 in Allentown, Pennsylvania

          1999 Delaware Valley (Pennsylvania) Technical 
        Recruiting Network TECHIE Award

          2000 Institute Service Award of the Chinese Institute 
        of Engineers-USA (CIE-USA)

          2000 Distinguished Alumni Award from his alma mater 
        Drew University of Madison, New Jersey

          2001 Science and Technology Award of the Greater 
        Dallas Asian American Chamber of Commerce

          2002 DFWTechbiz twelve persons to watch list

          2002 Life Time Achievement Award from the Association 
        of Chinese American Professionals

          Recipient of the 2003 Inside Collin County (Texas) 
        Business 21 for the 21st Century award

          Honorary member of the Board of Trustees of Nanjing 
        University

          Dallas Section of IEEE 2003 Chairman Award for 
        ``outstanding promotion of engineering awareness and 
        research.''

    Chairman Smith. Thank you, Dr. Feng.
    Dr. Slocum.

STATEMENT OF DR. ROBERT E. SLOCUM, CHAIRMAN AND CHIEF TECHNICAL 
      OFFICER, POLATOMIC, INCORPORATED, RICHARDSON, TEXAS

    Dr. Slocum. Chairman Smith and Congresswoman Johnson, it's 
a great pleasure for me to be here to present testimony on the 
SBIR program, because it's become a very significant part of 
our--at Polatomic. It's permitted the formation of a world-
class research and development team to solve what I call large 
company problems of significant national interest in a small 
company environment.
    I'd like to direct my comments today to that part of the 
hearing entitled on the challenges of enhancing small business 
competitiveness in the Dallas area, and I refer to this as 
promises and perils. I'll begin with the promises of the SBIR 
program, and if I could have the slide up, please.
    Polatomic is proud of its record for developing SBIR Phase 
I and Phase II contracts. However, competitiveness must be 
judged by successful transitions to Phase III projects, such as 
those that might show up here in a minute.
    Mr. Chairman, let me just point out one of these, the Phase 
III project now in progress for the AN/ASQ-233 submarine 
detection center. The Multi Mode Magnetic Detection System 
using this system was designed in response to the Chief Naval 
Operations Initiative for guiding an unmanned aerial vehicle to 
deliver a torpedo on a shallow water submarine, the submarine. 
ONR awarded us in late FY03 an $11.4 million contract under 
Littoral Antisubmarine Warfare Future Navy Capabilities 
Project. Estimates of the worldwide sales for this system is 
between $500 million and a billion dollars, based on past 
experience. This is promise.
    Now, let me turn to the perils shown in our next slide. The 
peril number one for an SBIR company is funding fluctuations or 
line item budget instabilities, once you get Phase III. Our $11 
million contract was to have FY04 funding of $5.5 million in 
August, by September it was set to $3.5 million, by October 
$1.5, and by the end of December $.5 million. The funding 
decreases of this kind are very destructive for a small 
company, it must recruit the staff and obtain the facilities to 
perform a $5 million job, and then have the funding in that 
way.
    It would be helpful to have a cooperative venture between 
the Small Business Administration, SBIR and the Navy, and DoD, 
to establish buffer zone funding to restore Phase III funding 
for promising SBIR projects.
    Now, peril number two is predatory moves by large foreign 
and U.S. companies that attempted to do what I call ``roll 
overs,'' to take the technology away from you for free or, 
basically, put the small business out of business. Polatomic 
learned in December that a Canadian defense contractor, CAE, 
with sales greater than $1 billion, was attempting to persuade 
the Navy to replace us in the MMNBS project with CAE, although 
they have never demonstrated any comparable magnetic detection 
technology. Their proposal is basically that our $11 million 
contract be cancelled, that CAE come in and be allowed to catch 
up, to develop a new sensor from 30-year old technology to 
compete with us, and ONR and NAVAIR is supposed to support them 
in doing this work. It allows CAE to make a foreign company 
non-competitive buy-in to the U.S. antisubmarine warfare 
market, based on a CAE promise to use their company money, up 
to $9 million, to buy into this program.
    If this happens, and the CAE proposal is accepted, it will 
eliminate a U.S., SBIR, small business, with outstanding 
performance, in a system that's preparing for a fly test that 
meets all requirements in this fiscal year. It will present 
major technical and cost risks to the Navy, and it will force 
the Navy to abandon a national magnetic asset, Polatomic, and 
get a new technology from Canada.
    It is a sole-source magnet, it's a supplier of a 30-year 
old design, and most important to the Dallas area it will 
permit moving $500 million to a billion dollars in sales to a 
foreign country.
    To put it in simple terms, Polatomic is faced with the task 
of defending an outstanding Phase III SBIR program, set for 
transition to the fleet from an attack by a Canadian company--
Canadian government, attempting to buy into the U.S. market 
with Canadian dollars that could have been used to support the 
U.S. effort in Iraq.
    In the face of a threat like this, of this magnitude, who 
can help us? That's the question.
    In conclusion, I'd like to say that for an SBIR program to 
get full return on its investment, and provide maximum economic 
benefits for the Dallas area, the SBIR small business must make 
successful product transitions to Phase III and also 
manufacture its products. To paraphrase Dr. Feng, SBIR Phase I 
and Phase II vision without Phase III funding is a 
hallucination. In order for Polatomic to be competitive and 
recapture the $1 billion Navy magnetic protection business from 
CAE, and bring the business to the Dallas area, the Small 
Business Administration, the Navy, SBIR and congressional 
support is needed to see that this threat is countered and the 
Phase III transition money is provided to carry on with this 
excellent Phase III project.
    The SBIR program can be a significant element for moving 
Dallas toward a vision of fulfilling the biblical mandate that 
every person has daily work for dignity and fair rewards to 
care for your family. It can support the coupling of a vision 
of Committee Member Johnson and local leaders such as Albert 
Black and Don Williams, for building high-tech small businesses 
from the resources of the City's southern sector, and at the 
same time coupling into the vision of building high-tech small 
business from the ruins of the telecom nuclear winter out in my 
area of North Dallas.
    I want to express my appreciation to the Committee for this 
chance to share this with you.
    [The prepared statement of Dr. Slocum follows:]

                 Prepared Statement of Robert E. Slocum

    Testimony on the Small Business Innovation Research (SBIR) Program 
and the related Small Business Technology Transfer (STTR) Program, and 
to learn more about the opportunities that these programs offer to 
small businesses in the Dallas area.

1.  Describe the research that Polatomic received SBIR funding to 
perform. The primary area of research at Polatomic funded by ONR and 
NASA is advanced laser magnetic field measurement systems. Polatomic 
has advanced the state-of-the-art for magnetic field sensors used for 
detecting submarines (Airborne Antisubmarine Warfare), countermeasures 
for locating and protecting ships from buried sea mines (Mine 
Countermeasures), protecting the U.S. fleet with undersea magnetic 
sensors (Undersea Surveillance) and magnetic instruments for space 
research (NASA Planetary and Earth Science programs). Polatomic has 
become the world leader in laser magnetometers. A second research area 
supported by SBIR funding is research and development of metal 
nanostructures for polarizing light and biohazard detection nano chips 
(Telecom and laboratory polarizing optical filters and Homeland Defense 
biohazard detection).

2.  Do you consider Polatomic's SBIR-funded project to have been 
successful? Yes, very successful technically but the jury is still out 
on transitioning to fleet Navy hardware capable of fording quiet subs 
in shallow waters or replacing dolphins in mine hunting. Under SBIR 
sponsorship Polatomic has emerged as the world leader and a national 
asset in the area of laser magnetic detectors. Polatomic is 
transitioning this technology to solve significant U.S. Navy problems 
in the fleet and solve NASA instrumentation problems for significant 
space missions and Earth science investigations. Polatomic developed an 
optical coating that polarizes light that is used to fabricate optical 
filters sold through international distribution. Development of the 
polarizing coating led to formation of a spin off company, Integrated 
Photonics, Inc., formed with five former members of the Materials 
Division of Bell Laboratories. Continued SBIR support over the last 
fifteen years has enabled Polatomic to achieve steady growth as a small 
business in the Telecom Corridor of Richardson, TX, where up to 100,000 
jobs were lost in the Telecom sector. The SBIR program will allow 
Polatomic to recapture the DOD Magnetic Detection business lost by 
Raytheon and reclaim the possible $1 billion in revenues for the Dallas 
area if transition money is reinstated.
      The SBIR awards enabled Polatomic to attack and solve large-
company problems in a small company environment with university 
collaboration such as University of Texas-Dallas NanoTech Institute. On 
January 20 a collaborative SBIR proposal with the Nano-Tech Institute 
of the University-Dallas was submitted to NSF for a Biohazard detection 
nanochip. Polatomic now collaborates with UT-D whenever possible but in 
the past has included Caltech, University of Missouri-Rolla and the 
University of Central Florida and the Optical Science Center of the 
University of Arizona.

3.  Has Polatomic commercialized any of the technologies developed 
under the SBIR program? Polatomic is proud of its record for research 
and development of technology under Phase I and Phase II SBIR 
contracts. The success of these projects can be judged by the 
successful transitions to Phase III projects that are aimed at further 
transitions to the Navy fleet, NASA space missions and commercial 
products. Highlights of the Phase III SBIR accomplishments include the 
following:

          $11 million FY04 award for Multi Mode Magnetic 
        Detection System using Polatomic AN/ASQ-233 for guiding an 
        unmanned aerial vehicle to deliver a torpedo on a shallow water 
        submarine. Agency--Office of Naval Research under Littoral 
        Antisubmarine Warfare Future Naval Capabilities project. Note 
        that selection for ONR FNC project indicates intention to 
        transition to the fleet. Laser magnetometer flight 
        demonstration in Navy P3-C showed sensitivity improved by a 
        factor of 30 over current Navy Magnetic Detector Set AN/ASQ-81.

          $6.7 million FY04 award for a laser magnetometer 
        system for Undersea Surveillance. Agency--Office of Naval 
        Research under Littoral Antisubmarine Warfare Future Naval 
        Capabilities project for Seaglider/Distributed Autonomous 
        Detection System for fleet perimeter defense.

          $25 million FY02 award for IDIQ Contract. Agency--
        Naval Air Systems Command for Phase III contracts; used by Navy 
        and DARPA for Underground Facilities Detection tests.

          $1.4 million Instrument Incubator Program for space 
        magnetometer development. Agency--NASA Division of Earth Solid 
        Earth and Earth Hazards. Selected for space flight instrument 
        development in FY05 under New Millennium Program.

          Polatomic Laser Space Magnetometer selected by Jet 
        Propulsion Laboratory for ``Inside Jupiter'' Mission proposal 
        to NASA (in progress).

4.  How critical has the SBIR program been to Polatomic's growth and 
success? The SBIR program has been a critical factor for the growth and 
success of Polatomic, Inc. SBIR awards have enabled Polatomic to start 
with a single person in 1982 and assemble a highly qualified team of 
scientists and engineers to attack and solve high priority ``large 
company'' problems in a ``small company'' environment without 
significant outside venture capital investors. Since DOD and NASA 
acquisition cycles are relatively slow for new sensor systems (Navy) 
and space instruments (NASA), conventional venture investors pull back 
from slow payback investments and push elsewhere for rapid returns on 
their investments. SBIR is viewed by Polatomic as a patient investor 
interested in providing advanced technology solutions to very 
significant problems for the Government and commercial customers. 
Polatomic also sees SBIR as an investor deserving a significant return 
on their investment in terms of major problems solved and commercial 
successes benefiting the DFW area. During Polatomic's first decade 
(1982-1991), local business, university and government leaders in 
Richardson, TX, had their attention and resources focused on recruiting 
large Telecom companies such as Nortel and Alcatel. Very little energy 
was left for nurturing small businesses and the SBIR program filled 
that gap. Following the Telecom ``Nuclear Winter'' and elimination of 
tens of thousands of Telecom jobs, small high tech businesses in the 
North Dallas area represent a significant path to recovery that can 
become a leader for technology growth in other sectors of the city. The 
Phase I and Phase II contracts and grants have enabled Polatomic to 
solve problems left unsolved by other major U.S. corporations, and the 
Dallas area will receive the financial benefits of this success.

5.  Have you encountered any conflicts between the research goals of 
the federal agency that issued Polatomic the SBIR grant and the 
business plan of your company, and if so, please describe? The key to 
success is understanding your customer's problem, then proposing and 
executing an innovative yet reasonable solution within the available 
budget and schedule. Large company experience helps to keep this 
``customer focus.'' Agreement about the research goals and desired 
results is not the problem. The problem is the schedule and funding for 
reaching these goals. Government customers have all the time in the 
world relative to a small company. Funding gaps and delays between 
Phase I and Phase II can be as much as six months to a year, and even 
longer for Phase III projects. This can be disruptive or sometimes 
fatal to a small company.

6.  What recommendations do you have for ways to improve the SBIR 
program, and if so, what are they? The SBIR system is very workable 
``as is'' although the ever expanding size of the program is creating 
periodic delays and snags. One major problem is the long gap (six 
months or more) between the conclusion of Phase I and the award 
announcements for Phase II. It is often difficult to hold a team 
together through this funding gap. Preparation of a winning proposal 
for small businesses new to the SBIR process is a fairly complex and 
confusing exercise. I propose that ``entry level SBIR'' small 
businesses could use help getting started from funded local or state 
SBIR organizations and business schools working in conjunction with 
successful SBIR winners who serve as consultants and mentors. 
Preliminary state or regional funding to get these new businesses 
trained would improve the SBIR success rate for the Dallas area.
      In order for the SBIR Program to get the full return on its 
investment and provide maximum economic benefits for the Dallas area, 
the SBIR small company can use some additional protection at the Phase 
III project level, particularly for Phase III transition programs 
within DOD. The two prominent problem areas are erratic and unreliable 
funding for Phase III contracts with DOD agencies that are currently 
(FY04) experiencing large fluctuations in funding. The second area 
where help would be appreciated is small business protection from 
attempts by large U.S. and foreign companies who attempt to ``roll 
over'' Phase III small businesses to capture superior competing 
technology developed under SBIR awards or put a small business out of 
business. Two case studies can be taken from the following two current 
challenges faced by Polatomic:

          Example #1--A major problem is transition from Phase 
        II to a successful Phase III program. Polatomic proposed and 
        was awarded a Phase III ONR Contract for $11 million with $5.5 
        million in first year that was reduced to $3.5 million before 
        start of FY 2004 and by the end of December 2003 was reduced to 
        $0.75 million. The budget fluctuations reflect the reality of 
        the cost of the Iraq engagement, but it is costly and 
        destabilizing for a small company that must recruit staff and 
        obtain facilities to prepare to perform on the contract and 
        then have the funding recalled or slipped into the out-years. 
        It would be very helpful to small businesses receiving Phase 
        III contracts if a ``funding buffer zone'' could be created to 
        stabilize DOD budget line items intended to fund Phase III SB1R 
        projects that represent true advances in the state of the art 
        and are slated to transition to the fleet.

          Example #2--Predatory moves by large foreign and U.S. 
        companies to attempt ``roll overs'' are a serious threat to the 
        success of Phase III SB1R efforts. The Polatomic ASW laser 
        magnetometer has been selected for the Office of Naval Research 
        Future Naval Capabilities Program in Littoral Antisubmarine 
        Warfare and an $11 million contract has been signed with 
        Polatomic. Polatomic learned in December 2003 that a Canadian 
        defense contractor (CAE) with sales greater than $1 billion is 
        trying to persuade the U.S. Navy to cancel the contract won 
        competitively by Polatomic and award it to them even though 
        they have not demonstrated any comparable magnetic detection 
        technology. This proposal from CAE to the Navy will allow CAE 
        to buy into the U.S. advanced ASW market by spending CAE 
        company funds (a significant fraction of the $11 million 
        Polatomic contract) to obtain U.S. Navy sponsorship and 
        guidance to try to bridge the 25 year technology gap between 
        CAE and Polatomic. This is a risky attempt to catch up with the 
        Polatomic AN/ASQ-233 developed under SBIR sponsorship. By 
        making the change from the Polatomic AN/ASQ-233 (to be flight 
        tested this fiscal year) and starting over with CAE, the Navy 
        would incur schedule delays and raise performance and cost 
        risks to acquire a system technically inferior to the Polatomic 
        AN/ASQ-233. By selecting CAE the Navy would eliminate Polatomic 
        as a small business supplier of a truly advanced MMMDS System 
        and shift the magnetics detection technology base to Canada 
        beyond U.S. Navy control. By shifting this technology to 
        Canada, the Dallas area will lose the potential of $500 million 
        to $1 billion in revenues to Canada. Put in simple terms, 
        Polatomic is faced with the task of defending an outstanding 
        Phase III Navy SBIR FNC transition program from attack by a 
        Canadian company subsidized by the Canadian government 
        attempting to buy into the U.S. ASW market with Canadian 
        dollars that could have been used to support the U.S. efforts 
        in Iraq. In the face of a threat of this magnitude to 
        Polatomic, who can help us?

7.  How would you rate the level of technical and administrative 
support that Polatomic received throughout the SBIR grant process? 
Overall, the SBIR staffs assigned to our grants and contracts have done 
a very good job considering the limitations of their particular agency. 
The surprise is the large number of people in the SBIR program with a 
true passion to help small businesses succeed. I have been fortunate to 
work under sponsors such as Carol Van Wyk (Naval Air Systems Command) 
and Ritchie Coryell (National Science Foundation) who are deeply 
concerned with the success of high performing, small companies who are 
recipients of SBIR grants and contracts. The administrative process for 
submitting proposals and reporting progress is adequate. A major source 
of problems has come from the edict requiring Internet submission of 
proposals through Government web capabilities that are inadequate, 
resulting in jam-ups and delays. The Grantee Training Conferences 
sponsored by NSF is worthwhile even for experienced SBIR participants. 
I propose that this type of pre-proposal conference be held in the 
Dallas area on a regular basis to cover Phase I, Phase II and Phase III 
program and proposal success. I would also propose that our SBIR 
advocates participate in the Phase III transition phase funding 
decisions at the FNC level to insure continuity.

                     Biography for Robert E. Slocum

    Robert E. Slocum founded Polatomic, Inc., in 1982 and serves as 
Chairman and Chief Technical Officer. His technical specialty is 
application of atomic and nuclear physics to magnetic and optical 
instrumentation. He is also a consultant in the area of strategic 
planning and new product development. He specializes in development of 
helium magnetometers and the application of solid state lasers for 
optical pumping sources. Polatomic has been awarded more than thirty 
SBIR contracts by NASA/JPL, the Naval Air Systems Command, the Naval 
Sea Systems Command, the National Science Foundation, and the US 
Special Operations Command. Dr. Slocum has served as Principle 
Investigator for each of these contracts. In November 1991, NASA 
selected Polatomic to design and prototype the scalar helium 
magnetometer (SHM) for the Cassini mission to the planet Saturn. From 
1959 to 1982, Bob worked at Texas Instruments. He served as Project 
Physicist on the low-field helium magnetometer flown on the Mariner IV 
and V Spacecraft and directed production research for the AN/ASQ-81 
helium magnetometer sensor. Dr. Slocum is the inventor of the diode 
laser-pump source for helium magnetometers, the nuclear free precession 
Helium 3 magnetometer and the Planar Thin-Film Polarizer. He holds 
patents on these devices and has published numerous papers on optically 
pumped magnetometers, including an invited paper on the past and future 
of resonance magnetometers presented at the International Magnetics 
Conference. Bob received his BS in 1960 and M.E.P. in 1963, both in 
Engineering Physics from the University of Oklahoma. He received his 
Ph.D. in Atomic Physics from the University of Texas at Austin in 1969.

Publications and Papers

         1.  ``Advances in Optically Pumped Helium Magnetometers for 
        Space and Earth Science.'' (Invited paper with E.J. Smith at 
        IXth IAGA Workshop on Geomagnetic Observatory Instruments, 
        Slovakia 12-18 June 2000.) Contributions to Geophysics and 
        Geodesy, 30, No. 2 (2000).

         2.  ``The Helium Magnetometer: An Instrument Providing 
        Exceptional Sensitivity, Accuracy and Versatility,'' (with E.J. 
        Smith and R.J. Marquedant), Chapman Conference--Measurement 
        Techniques for Space Plasmas, Santa Fe, NM, April 1995.

         3.  (Invited) ``Advances in Laser-Pumped Helium Magnetometers 
        for Space Applications,'' 1990, 8th Topical Conference on High 
        Temperature Plasma Diagnostics. Hyannis, MA, May 1990, 
        published in Review of Scientific Instruments, October 1990, 
        2984.

         4.  ``Nd:LNA Laser Optical Pumping of 4He: Application to 
        Space Magnetometers.'' Published in Journal of Applied Physics, 
        December 15, 1988, Page 6615.

         5.  ``New Near-Infrared Polarizer for Laser Applications,'' 
        (with D. Andrychuk), Proc. of SPIE, 740 (1987).

         6.  ``Evaporative Thin Metal Films As Polarizers,'' (1983), 
        SPIE, Vol. 307, Polarizers and Applications, 25.

         7.  ``Application of Helium Isotope to a NMR Gyro,'' (with 
        D.D. McGregor), published in Optical Engineering as Proceedings 
        of Conference on Laser Inertial Rotation Sensor, 1978.

         8.  ``Evaporated Metal Films as Polarizing Optical Coatings,'' 
        Journal of the Optical Society, 63, 1283 (1973)--Abstract. 
        Presented at the 1973 Annual Meeting of the Optical Society of 
        America, Rochester.

         9.  ``Transverse Relaxation Times for He 3 Nuclei by Free 
        Precession Method,'' Bulletin of American Physical Society 4, 
        487 (1974). Presented at the APS Washington, DC meeting.

        10.  ``A Nuclear Free Precession Magnetometer Using Optically 
        Polarized He3 Gas,'' IEEE Transactions on Magnetics, Vol. MAG-
        10, 528 (1974). Presented at the International Magnetics 
        Conference, Toronto.

        11.  ``Measurement of the Geomagnetic Field Using Parametric 
        Resonances in Optically Pumped He4,'' (with D.D. McGregor), 
        IEEE Transactions on Magnetics, Vol. MAG-10, 532 (1974). 
        Presented at the International Magnetics Conference, Toronto.

        12.  (Invited) ``Measurement of Weak Magnetic Fields Using 
        Zero-Field Parametric Resonance in Optically Pumped He4,'' 
        (with B.I. Marton). IEEE Transactions on Magnetics, Vol. MAG-9, 
        221 (1973). Presented at the International Magnetics 
        Conference, Washington, DC.

        13.  ``Zero-Field Level Crossing Resonances in Optically Pumped 
        He4,'' Bulletin in the American Physical Society, 17, 1127 
        (1972). Presented at the San Francisco meeting of the APS 
        Division of Electron and Atomic Physics (1972).

        14.  ``Zero-Field Level-Crossing Resonances in Optically Pumped 
        He4,'' Physical Review Letters 29, 1642 (1972).

        15.  ``Self-Oscillating Magnetometer Utilizing Optically Pumped 
        He4,'' with P.C. Cabiness and S.L. Blevins, Rev. Sci. 
        Instruments 42, 763 (1971).

        16.  ``Advanced Optically Pumped Sensors for Detecting Small 
        Changes in Magnetic Fields,'' Proceedings of the Magnetic 
        Anomaly Detector Symposium Naval Ordnance Laboratory, White Oak 
        (1971).

Patents:

``Radiation Source for Helium Magnetometers.'' Issued 1991.

``Light Polarizing Material Method and Apparatus.'' Filed February 
        1973. Issued 1975.

``Light Polarizer Comprising Ellipsoidal Metal Particles on Surface of 
        Transparent Sheet and Method of Making the Same.'' Issued June 
        1992.

Doctoral Dissertation

``Orientation Dependent Resonance and Nonresonance Effects in Optically 
        Pumped Helium 4,'' University of Texas at Austin, 1969.

    Chairman Smith. The appreciation is ours.
    Dr. Murphy.

    STATEMENT OF DR. OLIVER J. MURPHY, PRESIDENT, LYNNTECH, 
              INCORPORATED, COLLEGE STATION, TEXAS

    Dr. Murphy. Thank you, Mr. Chairman, Congresswoman Johnson. 
I thank you for allowing me the opportunity to testify today 
before you regarding the Small Business Innovation Research 
Program and the related STTR program.
    I am the co-founder and President of Lynntech, Inc., a 
small business specializing in the development and 
commercialization of new technologies. The company is located 
in College Station, the home of Texas A&M University. The 
company was founded in 1987, and since that time the business 
activities of the company have focused on the development and 
commercialization of new technologies in a number of key areas 
of vital important, both for our security and economic growth 
in this country.
    Early stage development of technologies in the critical 
areas that we are working in have been supported by funds 
received from the Federal Government through the SBIR program. 
As to the technical feasibility of various technologies have 
been established, the company was successful in obtaining 
advanced technology development funding through other Federal 
Government programs such as Broad Agency Announcements, some 
PRDAs and other agency solicitations. Subsequently, in a number 
of cases, advanced hardware developments that yielded prototype 
devices were created as a result of establishing relationships 
with intermediate-sized and large-sized industrial 
corporations. These have resulted in successful commercial 
products and processes.
    The goal of the company from day one, and still is, is to 
commercialize products and services derived from successfully 
developed new technologies. The company's commercialization 
plan includes licensing arrangements, spinoffs, joint ventures 
and outright sale of developed technologies where appropriate. 
A number of these commercialization mechanisms have been 
successfully expedited by the company, and have involved 
technologies developed with SBIR funding.
    And, in the interest of time, I have described two of them 
in my extended testimony, and I will leave it for the record.
    Critical to the success of Lynntech in developing and 
commercializing new technologies has been its participation in 
and support by the SBIR programs of almost all of the Federal 
Government departments and agencies. The company has received 
Phase I, Phase II, and Phase III awards from departments and 
agencies that issue both contracts and those that issue grants. 
This has allowed the company to maintain a sustained technology 
development effort for a number of critical technologies, for 
instance, such as fuel cells, that are recognized to be of 
vital importance to the national security and to the country's 
economic future.
    The existing SBIR and STTR programs are, indeed, novel 
models for funding technology development and commercialization 
within small businesses. However, they can be improved, 
enhanced, and expanded upon, so as to stimulate regional or 
local economic development, and even to give a greater return 
to the taxpayer.
    To further improve the SBIR and STTR programs, I would like 
to recommend the following. There should be more extensive 
participation of federal agencies in SBIR Phase III activities, 
and, indeed, this was referred to earlier by my colleague, Dr. 
Slocum.
    There should be more extensive coaching and business 
support for SBIR/STTR funded small businesses so as to increase 
the level of commercialization activities.
    There should be greater participation by state agencies in 
providing resources to SBIR/STTR funded small businesses that 
are complimentary to the existing federal SBIR/STTR programs.
    There should be expanded regional conferences and workshops 
that provide information about these programs and sources of 
assistance for existing, as well as start-up small businesses.
    It should be required, in my opinion, that business schools 
of federally-funded colleges and universities should interact 
with SBIR and STTR funded small businesses.
    And finally, courses on new ventures and entrepreneurship 
should be established at all colleges and universities in this 
country.
    Mr. Chairman, I thank you for your time.
    [The prepared statement of Dr. Murphy follows:]

                 Prepared Statement of Oliver J. Murphy

INTRODUCTION

    Mr. Chairman, Congresswoman Johnson, Members of the Committee, I 
thank you for allowing me the opportunity to testify before you 
regarding the Small Business Innovation Research (SBIR) Program, the 
related Small Business Technology Transfer (STTR) Program, and the 
opportunities that these programs offer to small businesses in the 
United States, and in particular in the State of Texas.
    My name is Oliver J. Murphy, co-founder and President of Lynntech, 
Inc., a small business specializing in the development and 
commercialization of new technologies. Lynntech is located in College 
Station, the home of Texas A&M University. I have actively participated 
in research and development work, as well as technology development and 
commercialization efforts, for over twenty years, first in academia, 
second in a large corporation, and finally in a small business. Having 
experienced all three working environments, I am convinced that 
employee satisfaction, growth, creativity, and productivity are 
greatest in small businesses. Small businesses are good for the United 
States because they create a growing number of jobs each year in this 
country and develop an increasing amount of new technologies as 
evidenced by the number of U.S. patents attributed to this business 
sector. In order to maintain economic growth and to enhance our 
standard of living in this country through the decades to come, as a 
society we must devote the necessary resources to foster the growth of 
existing small high technology businesses and to create new small 
businesses at a faster pace. A significant amount of these resources 
can be made available to those small businesses through the SBIR and 
STTR programs. Improved and enhanced variants of these programs are 
essential for the creation and growth of a major segment of small high 
technology based businesses in this country.
    Since, to a large extent, venture capitalists no longer make seed 
round investments in start-up technology based ventures, increasingly 
small businesses face the challenge of securing the needed capital to 
demonstrate the technical and commercial feasibility of their concepts 
or ideas. Over the last decade venture capitalists have made only later 
stage investments in small technology based companies after the 
technical and commercial risks have been minimized or almost 
eliminated. In many cases this has led the principals of new, start-up 
technology development ventures to raise seed capital from family and 
friends, which in most cases is insufficient to reach desired 
milestones and leads to the failure of many such ventures. The unique 
and essential aspect of the SBIR and STTR programs is that they provide 
to for-profit small businesses the difficult to obtain early stage 
financial support necessary to develop high-risk, high-payoff 
technologies. Solicitations for proposals, issued at least annually, by 
participating Federal Government Departments and Agencies encompass the 
complete spectrum of technologies from aerospace to biotechnology and 
nanotechnology. This eliminates any technology bias or so-called 
``picking winners'' by the Federal Government.
    With the continued downsizing of most large industrial corporations 
and increasing pressure on management teams to meet or exceed the next 
quarterly earnings expectations, long range research and technology 
development efforts within many of these corporations have been reduced 
significantly over the past ten to fifteen years. To maintain a 
technological and competitive edge to their products in what is rapidly 
becoming a global economy, large companies need to have access to the 
latest developed technologies. It has been recognized more and more 
each year that a ready source of proven high technologies for these 
large companies exists within many SBIR and STTR funded small 
businesses throughout the country. Through either acquisitions, 
strategic relationships, or licensing arrangements, commercialization 
of many of these developed technologies is accomplished by large 
corporations.
    Alternatively, commercialization is achieved by the small 
businesses themselves by raising additional capital in the public 
markets and/or as the result of venture capital investments, such 
investments and raising of capital being made after the initial SBIR 
funding has been spent. Because of the growing trend of a short-term 
business focus and the increasing tendency to avoid technology risk 
within large industrial organizations in this country, the need for 
small, high technology businesses and their ability to obtain 
technology development funding from State and Federal Government 
entities, such as that made available through the SBIR and STTR 
programs at present, will be essential for the generation of jobs in 
the future and the creation of wealth and prosperity in this State and 
the other States.
    The existing SBIR and STTR programs are models for funding 
technology development and commercialization within small businesses 
that can be improved, enhanced, and expanded upon so as to stimulate 
regional or local economic development and give greater returns to the 
taxpayer. To illustrate the opportunities offered by the SBIR and STTR 
programs, I will outline below the experiences of Lynntech with these 
programs.

LYNNTECH'S EXPERIENCE WITH THE SBIR AND STTR PROGRAMS

    Lynntech was founded as a small, high technology business in 1987 
and incorporated as a Texas Corporation. At the time of organizing the 
company, the founders were employees of Texas A&M University. However, 
the company did not initiate full time business activities until 
January of 1990, after its two initial employees resigned their 
positions at Texas A&M in December 1989. Since that time the business 
activities of the company have focused on the development and 
commercialization of new technologies in four primary areas: (i) 
environmental technologies; (ii) electrochemical energy conversion and 
storage; (iii) corrosion and materials science; and, (iv) biomedical/
bioengineering. Early stage development of technologies in these key 
areas has been supported by funds received from the Federal Government 
through the Small Business Innovation Research (SBIR) Program. After 
the technical feasibility of various technologies have been 
established, the company has been successful in obtaining advanced 
technology development funding through other Federal Government 
programs such as, Broad Agency Announcements (BAAs), Program Research 
and Development Announcements (PRDAs), and other Agency solicitations. 
Subsequently, in a number of cases, advanced hardware developments that 
yielded prototype devices were created as a result of establishing 
relationships with intermediate-size and large-size industrial 
corporations. These have resulted in successful commercial products and 
processes. The goal of the company from the day it was founded is to 
commercialize products and services derived from successfully developed 
new technologies. The company's commercialization plan includes 
licensing arrangements, spinoffs, joint ventures, and outright sale of 
developed technologies where appropriate. A number of these 
commercialization mechanisms have been successfully exploited by 
Lynntech and involved technologies developed with SBIR funding.
    Critical to the success of Lynntech in developing and 
commercializing new technologies has been its participation in and 
support by the SBIR programs of almost all of the Federal Government 
Departments and Agencies. The company has received SBIR Phase I, Phase 
II, and Phase III awards from Departments and Agencies that issue 
contracts, and from those that award grants. This has allowed the 
company to maintain a sustained technology development effort for a 
number of technologies, such as fuel cells, that are recognized to be 
of vital importance to national security and to the country's economic 
future. Fuel cell power sources have multiple applications for which 
large markets are a few years to over a decade away. After learning how 
to work with the various Government Departments and Agencies over the 
first few years of being in business, the SBIR experience from proposal 
submission, contract negotiation, contract or grant administration, and 
reporting have been very good. A marked improvement has occurred over 
the years with regard to receiving payments from various Agencies under 
the SBIR program, in particular, for contracts having progress 
payments.
    A measure of success in developing new technologies within Lynntech 
under the SBIR program is to record the number of issued U.S. patents 
assigned to the company. To date Lynntech has received 80 U.S. patents 
and in some cases corresponding foreign patents. Securing the 
intellectual property rights for developed technologies is essential to 
achieve subsequent successful commercialization of those technologies. 
Another measure of success that is monitored is the total number of 
employees in the company at the end of each year. From two employees at 
the beginning of 1990, new hires have been added each year that the 
company has been in business giving a total of 149 employees at the end 
of 2003. Of these 109 were full time employees and 40 were part time as 
well as being undergraduate students at Texas A&M University. As a 
result of the SBIR and STTR programs, Lynntech is the leading high 
technology development and commercialization company in the Bryan/
College Station region. The economic impact of the company in the 
region, which has surprisingly few similar high technology small 
businesses in view of the presence of Texas A&M University, is quite 
significant. To further illustrate the opportunities offered and the 
benefits received by participating in the SBIR and STTR programs, I 
will provide two examples of technologies developed and successfully 
commercialized at Lynntech under the SBIR program.

FUEL CELL TEST SYSTEMS

    Fuel cells generate electricity through a chemical reaction between 
oxygen in the air and a fuel, such as hydrogen or methanol. As a 
result, they are quite efficient and clean; discharging only benign 
byproducts such as water vapor. These devices have the potential to 
power everything from laptop computers to manufacturing plants. Thus, 
for over the past 15 years extensive development of various fuel cell 
technologies for a variety of applications has been carried out by 
universities, national laboratories, and large as well as small 
companies both here in the United States and abroad. Developers of the 
various fuel cell technologies require advanced, fully automated, 
computer-controlled test equipment to determine the performance of fuel 
cell components such as electrocatalysts, as well as fuel cell stacks 
and fuel cell power systems.
    State-of-the-art fuel cell test equipment was invented by Lynntech 
in the early to mid-1990s with funding for the design, fabrication, and 
testing stemming from a Phase II SBIR contract with NASA's Glenn 
Research Center. To match the requirements of individual fuel cell 
developers, Lynntech developed a modular approach on designing the test 
equipment (see Attachment I), enabling custom solutions with standard 
equipment. Since 2001, Lynntech Industries, Ltd., a spin off from 
Lynntech, Inc., has been manufacturing and selling a complete range of 
fuel cell test systems world-wide to meet the needs of customers in the 
rapidly growing market of fuel cells. Commercial sales of fuel cell 
test equipment were almost $2 million in 2003. Part of an experienced 
management team was put in place in Lynntech Industries in 2003 which 
is now actively pursuing venture capital to aggressively exploit this 
very significant business opportunity. This ``success story'' was 
written up in the NASA Spinoff 2003 Booklet (see Attachment II).

ELECTROCHEMICAL OZONE GENERATION TECHNOLOGY

    Ozone has a long history associated with the treatment of drinking 
water at municipal water treatment plants. More recently, it has been 
used as the final treatment step in the preparation of potable bottled 
water. Ozone is known to be a potent disinfectant and is very effective 
for destroying a broad range of harmful microbiological species that 
may be present in water, food ingredients, and on surfaces such as 
flexible medical endoscopes. Ozone generation devices that have been 
used for decades include ultraviolet lamps and corona discharge 
generators, both of which require a source of oxygen gas to produce 
ozone. However, these methods of ozone generation suffer from a number 
of drawbacks including performance, reliability, durability, 
scalability, and cost.
    In the early to mid-1990s with SBIR funding from NASA, Department 
of Health and Human Services, and the Department of Defense, Lynntech 
developed a new electrochemical method for the production of ozone from 
water and investigated the suitability of using it in a variety of 
applications. The electrochemical method provided many distinct 
advantages which are not available from the earlier mentioned ozone 
generation technologies. After securing the intellectual property 
associated with the electrochemical ozone generation technology, 
Lynntech initiated commercialization activities in the late 1990s. This 
resulted in the establishment of a strategic relationship between 
WaterPik Technologies, Inc., and Lynntech in 1999. A joint product 
development effort was undertaken by both companies to enable the use 
of the technology in consumer home products. This lead to the 
completion of an exclusive license agreement between the companies in 
early 2000 and the successful launch of the first consumer product 
namely the AquiaTM for residue-free sanitization in the home in late 
2001. WaterPik's AquiaTM product is shown and described in Attachment 
III.
    The AquiaTM sanitizing system is a revolutionary household 
appliance introduced by WaterPik Technologies, Inc., that creates an 
all-natural, non-toxic sanitizing solution that is safe to use on food 
and surfaces to kill harmful germs. AquiaTM has been proven effective 
for use as a food contact surface sanitizes, non-food contact surface 
sanitizes and as an anti-bacterial rinse for fruits and vegetables. 
AquiaTM also significantly reduces the risk of bacterial cross-
contamination during food preparation involving raw meats and poultry. 
AquiaTM, which represents a new category in household products, creates 
activated oxygen, also referred to as ozone, by converting ordinary tap 
water into ``ozone-infused'' water through a patented electrochemical 
process. For years, ozone has been used commercially with the 
processing of produce and meats and in water purification but the 
necessary equipment was not economical for household use until AquiaTM 
was developed. The ozone-infused water produced by AquiaTM is more 
powerful than chlorine and can effectively kill 99.9 percent of common 
bacteria including E. coli, Salmonella, Staph, Listeria and K. 
Pneumonia.

CONCLUSIONS AND RECOMMENDATIONS

    In addition to the two technologies described above, Lynntech is in 
the process of commercializing a number of other technologies developed 
with SBIR funding. SBIR funding has been vital and essential to the 
growth and success of Lynntech over the past decade. Technologies in 
the embryonic stage of development at present will fuel future growth 
on being successfully commercialized either through spinoffs, joint 
ventures, or licensing arrangements. Most of Lynntech's SBIR funded 
projects have been successful from a technical perspective and it is 
anticipated that many of them will also be successful economically.
    Over the past ten years, Lynntech has worked with numerous 
technical and administrative personnel from various Federal Government 
Departments and Agencies. With very few exceptions, I would rate the 
level of technical and administrative support that Lynntech received, 
on numerous SBIR awards, as very good. In particular, the degree of 
interaction and contributions made by Contracting Officers Technical 
Representatives from the mission directed Agencies (e.g., DOD Agencies 
and NASA) were very good and extremely beneficial. I have not 
encountered any conflicts between the research goals of federal 
agencies that made SBIR awards to Lynntech and the business plan of the 
company. However, it must be pointed out that specific pieces of 
hardware delivered to a government agency for their use may not be 
relevant as a commercial product. It is the underlying technology, 
processes, and know-how accumulated during the SBIR project that can be 
used for the creation of useful commercial products.
    To further improve the SBIR and STTR programs, it is recommended 
that:

          There should be more extensive participation of 
        federal agencies in SBIR Phase III activities;

          There should be more extensive coaching and business 
        support for SBIR/STTR funded small businesses so as to increase 
        the level of commercialization activities;

          There should be greater participation by State 
        agencies in providing resources to SBIR/STTR funded small 
        businesses that are complimentary to the existing federal SBIR/
        STTR programs;

          There should be expanded regional conferences and 
        workshops that provide information about the SBIR/STTR programs 
        and sources of assistance for existing and start-up small 
        businesses that are either participating or would like to 
        participate in the SBIR and STTR programs;

          It should be required that business schools of 
        federally-funded colleges and universities should interact with 
        SBIR and STTR funded small business; and

          Courses on new ventures and entrepreneurship should 
        be established at colleges and universities.
        
        
        
        
        
        
        
        
        
        
                     Biography for Oliver J. Murphy

WORK EXPERIENCE:

1990-present--President and co-founder, Lynntech, Inc.

1987-1990--Assistant Director, Center for Electrochemical Systems & 
        Hydrogen Research, Texas A&M University

1984-1987--Project Leader, The Standard Oil Company, Warrensville 
        Research Center, Cleveland, Ohio

1980-1984--Research Associate/Senior Scientist, Department of 
        Chemistry, Texas A&M University

EDUCATION:

1980--Ph.D. (Electrochemistry): University College Cork/National 
        University of Ireland, Ireland

1977--M.Sc. (Electrochemistry): University College Cork/National 
        University of Ireland, Ireland

1976--H.Dip.Ed.: University College Cork/National University of 
        Ireland, Ireland

1975--B.Sc. (Chemistry): University College Cork/National University of 
        Ireland, Ireland

PROFESSIONAL SOCIETY MEMBERSHIPS:

Electrochemical Society

International Society of Electrochemistry

American Electroplaters and Surface Finishers Society

International Association for Hydrogen Energy

PUBLICATIONS:

Books and Book Chapters:

        1.  ``Electrochemistry in Transition: From the 20th to the 21st 
        Century,'' (with S. Srinivasan and B.E. Conway), Plenum Press, 
        New York (1992).

        2.  ``The Electrochemical Splitting of Water.'' In: ``Modern 
        Aspects of Electrochemistry,'' eds., J. O'M. Bockris, R.E. 
        White and B.E. Conway, Plenum Press, New York (1983), Vol. 15, 
        Ch. 1.

        3.  ``Spectroscopic Characterization of the Passive Film on 
        Iron Before and After Exposure to Chloride Ion.'' In: 
        ``Electrochemistry in Transition: From the 20th to the 21st 
        Century,'' eds., O.J. Murphy, B.E. Conway and S. Srinivasan, 
        Plenum Press, New York (1992).
Refereed Journal Articles:
    Over 50 refereed journal articles in national and international 
journals and over 60 technical presentations at national and 
international technical conferences. In addition, invited speaker at 
numerous regional and national Small Business Innovation Research 
(SBIR) Conferences.

PATENTS:

    Over 50 issued U.S. patents and corresponding foreign patents.
    
    
                               Discussion

    Chairman Smith. Thank you all very much.
    There's a lot of business people out here, so I'm going to 
start with a little sort of sermon, preaching, science and math 
test scores internationally are the seed corn for our 
researchers in this country. In the United States in K-12 we 
rank near the bottom in our science and math scores. And, it 
just seems to me that as a pocketbook interest on the part of 
business, certainly on the part of government, we've got to do 
a better job in encouraging our kids to be interested and 
stimulated in science and math, and to be involved in it as 
they go through their further education.
    I want to start, I think, with a question maybe to all 
witnesses. What percent of resulting products go to or are sold 
to the Federal Government or state government, versus the 
private sector? Do we have any figures on that, Mr. Montes, 
from SBA, or does Victor Klingelhofer?
    Mr. Montes. I think Victor Klingelhofer in Washington, they 
monitor compliance and statistics such as that in Washington. 
Would you like that now?
    Chairman Smith. Yes, either way, whatever Jim is the best 
way to do it. If they've got a response, if they haven't, 
David, follow up on that.
    In the meantime, Ms. Goodnight, what percentage of your 
research effort goes to public versus private sector?
    Ms. Goodnight. For us, because we are a granting agency 
predominantly, I would say a great majority would go to the 
public sector. We actually did a study that is posted on our 
web site, a national survey to evaluate the SBIR program 
between 1992 and 2001. From those results it appears that the 
majority are going to the private sector, because at the end of 
the day we don't.
    Chairman Smith. Private sector, not public sector.
    Ms. Goodnight. I'm sorry, public sector, because we do not 
buy what it is they are developing at the end of the project.
    Chairman Smith. I would think if it helped, I would think 
eventually it's going to hospitals and health care providers.
    Ms. Goodnight. Right, and physicians, and some of the 
major----
    Chairman Smith. Which I call the private sector.
    Ms. Goodnight. ----and some of it may come back to the 
research institutions, if they are developing improved research 
tools.
    But, my point is that our agency is not buying back what's 
being developed.
    Chairman Smith. Yes, right.
    Dr. Slocum, Dr. Murphy, in your involvement what percentage 
is sold to government?
    Chairman Smith. Yes, Polatomic is 100 percent DOD and NASA 
right now. We did a spinoff of our nanotech business into 
integrated photonics and joined with five people from Bell 
Laboratories formed a new company, and that's aimed at the 
private sector.
    Chairman Smith. And, Dr. Murphy.
    Dr. Murphy. Yes, the same in our case, Mr. Chairman, most 
of our products and services are to the private sector, a 
spinoff company sells products worldwide. We export to Europe 
and Asia, and we have a number of licenses.
    Chairman Smith. Dr. Slocum said the public sector, most of 
yours goes back to the Department of Defense, Navy.
    Dr. Slocum. Yes, but we did a spinoff to a separate company 
that markets worldwide.
    Chairman Smith. All I'm really interested in is the end 
product, does the end product go into commercial market use or 
does it go back to the Federal Government?
    Dr. Slocum. Well, we are 100 percent in Polatomic going 
into the government sector. In the other company we are going 
virtually 100 percent into the private sector, into the 
commercial area.
    Chairman Smith. And, what is that product?
    Dr. Slocum. It's optimal filters and biohazard potential.
    Chairman Smith. Dr. Murphy.
    Dr. Murphy. We are 100 percent at the moment into the 
private sector.
    Chairman Smith. And, let's see, Mr. Klingelhofer of SBA, do 
we have a figure nationally?
    Mr. Klingelhofer. We do not currently----
    Chairman Smith. I think we are going to ask you to send us 
that answer, because our technology sees you very clearly, but 
the transmission is a little bit weak.
    Mr. Klingelhofer. Is this better, Mr. Chairman?
    Chairman Smith. Yes, that's good.
    Mr. Klingelhofer. We do not currently track those numbers 
at the SBA. We will, however, research it.
    Chairman Smith. And so, what do you consider the goals of 
the program? As these different agencies develop their 
parameters of what they are looking for, how do they know what 
to decide if it's research, basic and applied, that's 
eventually going into the marketplace I guess I'm just a little 
curious of the tendency of the different agencies to say, well, 
this is what our agency needs, this is how we are going to send 
out the request for projects coming in.
    Mr. Klingelhofer. Mr. Chairman, we have developed a new 
database which will go on-line.
    Chairman Smith. You have to talk in the mic somebody said. 
That didn't work quite well.
    I'm going to bypass that and ask you, Ms. Goodnight, in NIH 
what is the number of requests versus the dollar allocations? 
Do we have a lot more requests for projects than the dollars 
that you make available?
    Ms. Goodnight. We do, indeed. Actually, about 24 percent of 
our Phase I SBIR applicants are funded, and about 44 percent of 
our Phase II applicants are funded.
    Chairman Smith. And, how does that gel with the requirement 
that you set aside a certain amount of your total research 
dollars for this program?
    Ms. Goodnight. The way it gels is, we are receiving, 
especially now, we have a large increase in the numbers of 
applications to our agency and other agencies are seeing the 
same, that is, in fact, why we chose this year to exceed the 
minimum requirement, because we had many more projects than we 
had funds to support if we were only to go with the minimum 2.5 
percent. And, for us that's a floor, and we have the option to 
exceed that minimum requirement, and we do exceed it, because 
we want to fund the best science.
    Chairman Smith. Representative Johnson, you remember the 
hearing, we had one hearing where one of the witnesses said 
that in the private sector, because so much pressure was coming 
from their Board of Directors and investors, they really didn't 
get involved in applied research unless it looked like they 
could have results in five or six years, and so it seems to me 
that that means that there needs to be some action on the part 
of State and Federal Government to try to be encouraging, 
whether it's through the tax system, or whether it's more 
effort in these kind of programs.
    I spoke last week or week before last to the Industry 
University Collaborative Research Program effort, which helps a 
little bit with the application of some of our knowledge. And, 
I'm going to turn this over to you, Congresswoman Johnson, 
before I get into too much of my speech making mode, but 
somehow we've got to be a little more selfish with our research 
dollars in this country to try to make sure results as an 
advantage to workers and businesses in the United States, and 
that's part of what I hope to get from this hearing, how do we 
do it?
    Ms. Johnson. Thank you.
    Chairman Smith. And, which Dr. was it, who has to leave at 
11:15? Dr. Feng, and Dr. Slocum and I, have to leave at 11:15.
    Ms. Johnson. Okay.
    Dr. Feng, it's obvious from your testimony that a vibrant 
high-technology small business community could bring 
substantial research contracts to the University of Texas at 
Dallas. Does your institution function as a subcontractor on 
any SBIR grant?
    Dr. Feng. Currently, I think we have about four of them as 
subcontractors to SBIR grants. What I would like to actually 
emphasize and underscore to the small businesses here, is not 
to just look at the University of Texas at Dallas as a single 
entity, but rather consider us as a window to other research 
universities in the State of Texas, or, in fact, in the 
Southwest, because we have such good working relationships with 
all the universities, such as Rice, UT-Austin, Texas A&M, and 
so on and so forth, including our neighbor UT-Arlington.
    So, I would say that there is a tremendous effort that is 
going on, however, I think that it is still too early to tell 
whether it's successful or not.
    What I would like to see that, in a year or two we are 
talking about each university working with ten to 20 small 
businesses in developing these kind of projects.
    Ms. Johnson. What services does your university supply, or 
the Consortium of Universities, supply to the companies who 
wish to get involved in this program?
    Dr. Feng. Well, I suspect that we'll look at the kind of 
activities that's going to come out of SBIRs and STTR. It will 
be, a lot of them will be in the biotechnology area, because of 
the tremendous growth of the NIH funding areas. I think the 
whole idea of homeland security technologies is going to grow 
significantly, we hope, of course, from the university side to 
see a clear path within the homeland security activities, how 
that can actually benefit the region, as well as for the 
Nation.
    I think the other area that is going to have a lot of 
progress is the information technology security issues, the IT 
security issues, where most universities, we, of course, have a 
lot, but most universities have an enormous amount of strength.
    Finally, nanotechnology for this region is becoming one of 
the hotbeds of the United States. Nanotechnology's 
collaboration between the four universities, Rice, Austin, 
Dallas and Arlington, together with our two border 
universities, UT-Brownsville and UT-Pan Am, have really started 
very, very well, and we look forward to all the participation, 
not only in the dry side of the nanotechnology, but also on the 
wet side of nanotechnology, which means that things such as 
nano medicine and so on with NIH, I have heard recently, that 
is promoting very, very actively.
    Ms. Johnson. And, how does a small business in Dallas, for 
example, get in touch or receive an SBIR award and learn how to 
apply? Is there a mentoring program?
    Dr. Feng. Well, actually, there is a very good website that 
people can go to called SBIRworld.com, and you go in there and 
you find just about all the SBIR information that you need.
    We are trying to set up monthly training sessions, not just 
for the small business, but also for our faculty. Our faculty 
really don't quite understand the importance of SBIR. I tell 
the faculty quite often that small business does not mean small 
money, and that is an important issue, and small business has 
real technological agility which is very useful for the 
university faculties to understand how to bring their research 
into the commercial side.
    I often said that I think we miss something when we just 
talk about R&D, research and development. We should have the 
second D, which is deployment. Deployment is very bad from the 
university point of view, we need to work with industry to help 
us to really bridge that gap.
    Ms. Johnson. And, a final question, in the past we 
recognized that people like Bill Gates and Michael Dean dropped 
out of college in order to have full control of their 
intellectual property. If a company is working in the field and 
comes to the university for help, who controls any resulting 
intellectual property?
    Dr. Feng. In the SBIR case, as far as I understand it, it 
is rather complicated, this is a complicated issue, we probably 
can talk about it all afternoon, but I think the Federal 
Government, of course, insists that the intellectual property 
in this particular case lie in the small business, and, in 
fact, it would go very quickly for commercialization.
    Universities tend to be a little bit more defensive on 
that, but I think it's getting more and more flexible nowadays 
in this particular effort.
    Ms. Johnson. Thank you very much.
    Did you want to ask?
    Chairman Smith. Either way.
    Dr. Slocum, I think Ms. Goodnight had a reaction maybe to 
your question?
    Ms. Goodnight. Just two quick reactions. One is, because 
I've got data with me and I'll give you some real numbers to 
your question. We, actually, this year received 4300 
applications, and that was about a 33 percent increase over the 
past year. So, based on the amount of awards, percentage of 
awards that were made, we clearly are seeing more.
    With regard to intellectual.
    Chairman Smith. I'm sorry, what percentage of that, of the 
applications, were awarded grants?
    Ms. Goodnight. Right, so 24 percent of the Phase I SBIRs 
were awarded, and 44 percent of the Phase II SBIR applicants 
were awarded.
    Chairman Smith. Dr. Slocum indicated in his testimony that 
there's a problem with a small business that has so many 
researchers of keeping them in line while they wait for the 
bureaucracy and the bureaucrats to come up with the Phase II, 
or even worse I think you indicated, going from a Phase II to a 
Phase III, and you agree, Dr. Murphy, that's one of the 
problems?
    Dr. Murphy. Yes.
    Chairman Smith. Is there any way, Mr. Montes, or the Deputy 
Administrator in Washington, should we be looking at that 
problem? If we are saying to a small company we want to help 
small companies in this effort, but we are going to make it 
very--you know, it ends up being very inconvenient because of 
the bureaucratic time line between I and II, and II and III.
    Dr. Montes.
    Mr. Montes. Thank you for the promotion, I'm Mr. Montes,
    Let me defer that to Victor Klingelhofer, if the microphone 
is working there, Victor.
    Mr. Klingelhofer. Is it working now, Mr. Chairman?
    Chairman Smith. Yes.
    Mr. Klingelhofer. We are undertaking a number of steps to 
increase the possibility of awards to small businesses. One 
thing that we are doing is working right now on enhance the 
program in Fiscal Years '04 and '05. We are currently talking 
with HUD, the Department of Veterans Affairs, GSA, and Justice 
so as to increase the band of small business opportunities in 
with the Federal Government market.
    Chairman Smith. There were a couple. Yes, Mr. Montes.
    Mr. Montes. Mr. Chairman, Ms. Goodnight wanted to address 
that point as well, but before I turn the microphone over to 
her, if I can go back to your question regarding the 
commercialization of whether the end result goes to public 
entities or private entities, or the commercial private 
enterprise.
    The statutory purpose, and this comes from our policy 
directive, the statutory purpose of the SBIR program is to 
strengthen the role of innovative small business concerns in 
federally-funded research or research and development. Specific 
program purposes are to, [1] stimulate technological 
innovation; [2] use small business to meet federal research and 
development needs; [3] foster and encourage participation by 
socially and economically disadvantaged small business 
concerns, and by small business concerns that are 51 percent 
owned and controlled by women in technological innovation; and 
[4] increase private sector commercialization, again, private 
sector commercialization derived from federal research and 
development.
    Chairman Smith. They make their own research and 
development.
    Mr. Montes. Exactly, well, not necessarily, not in the case 
of the Sonic Toothbrush, for example. So, there are the two 
references there.
    Chairman Smith. That doesn't mean one way or the other.
    Mr. Montes. Right.
    Ms. Goodnight. I would just like to comment on what our 
agency is doing to address this really difficult issue that the 
entrepreneurs are facing, and that's the gap that typically 
occurs between Phase I and Phase II, as well as between Phase 
II and Phase III, if you don't have an agency that's going to 
be that Phase III customer.
    Our agency offers a Phase I/Phase II fast track option, 
where the applicant can propose to us both Phase I and Phase II 
simultaneously and get a concurrent review.
    There are other agencies who offer similar types of gap 
funding options, like a Phase IIB. DOD has a fast track, and 
there might be some other agencies with programs to address the 
gap.
    We also offer no cost extensions and supplemental awards, 
the most recent of which is a competing continuation Phase II 
for the types of research that will need to go through 
regulatory processes, specifically, the Food and Drug 
Administration.
    So, I think our agency is certainly looking at ways that we 
can address many of these funding gap issues.
    Chairman Smith. Dr. Feng, would you want to make one final 
30 seconds, because you have to go in 30 seconds.
    Dr. Feng. Thank you very much.
    I think that I would encourage the small businesses to 
contact me, and to see how we can work together in the future.
    Chairman Smith. Well, just as a follow up on that, one or 
two individuals here today have developed a business consulting 
effort, where they are charging businesses to get involved in 
this program. And, it seems to me the Small Business 
Administration, each one of the agencies, and let's make sure 
maybe we pass that on to SBA, indeed, and we can follow up on 
it, it seems to me that the universities should make an extra 
effort so that businesses don't have to go pay for somebody who 
could have government help.
    And so, the complication of the application process that 
was in your testimony, both of your testimonies a little bit, I 
have to question, and you are certainly excused whenever you 
feel comfortable, Dr. Feng, at what point should we guard 
against, or at what point does this become a substitute for an 
effort of a small business to go out and get investors or use 
their own funds for research that they'd do anyway. And, I'm 
going to ask you, Dr. Slocum, to comment on that, and then the 
Small Business Administration and Dr. Murphy.
    Dr. Slocum. At Polatomic, we regard the SBIRs as investors.
    Chairman Smith. Yes, and does it become a substitute for 
other private sector money?
    Dr. Slocum. Well, it turns out when you are doing DOD work 
or NASA work it moves so slow, and you are working on national 
priority issues, that you need a patient investor like SBIR.
    In the second company that we spun off of Polatomics, when 
we combined the five people from Bell Laboratories we've been 
able to raise $7.5 million of venture capital, because that was 
aimed at a quick turnaround commercial application. It had to 
be telecom, so it was not the smartest thing I've ever done, 
but that opens up opportunities on both sides.
    Chairman Smith. And, Dr. Murphy.
    Dr. Murphy. I'd like to answer it this way, Mr. Chairman. 
Most SBIR companies that receive SBIR funding are trying to 
prove, assure feasibility, demonstrate feasibility. It's very 
early stage research and development work, which venture 
capitalists today will not fund.
    There is this lack of ability on the small businesses to be 
able to access funding from any source until you have shown 
feasibility, a working model, maybe intellectual properties, et 
cetera. I don't see it as an alternative to venture capital 
funding, it's an essential ingredient leading to venture 
capital funding. And, I think that is critical in this country, 
we lack that. This SBIR and STTR program is unique, it's very, 
very, very unique, and will serve us, I think it's serving this 
country well at the moment, but in the decades to come its 
full, if you like, its full benefits will be reaped, because 
large companies, as we well know over the last few decades, are 
no longer doing this advanced research and development work. We 
will lack the ability to have new products, new technologies, 
unless somebody takes up the plow, if you like, to put money 
into that effort.
    Chairman Smith. I guess as a public policy I personally 
would like to go spread this money around and encourage more 
small businesses, should we consider putting some kind of a 
limit so that one business that now has learned how to get 
through the bureaucratic ropes of government doesn't 
monopolize, for lack of a better word, some of the repeat 
funding? Should we consider some kind of a limit of three Phase 
I grants, or ten Phase I grants? I mean, that's my question, 
should we make an extra effort to spread this around, and I'll 
ask SBA in Washington eventually to maybe get back to me on 
that question.
    Yes, Dr. Slocum.
    Dr. Slocum. I think that, you know, as a free enterprise 
person, that as long as you have a meritorious idea that really 
has promise that it would be unwise for the country to limit 
it.
    I sometimes judge Phase II proposals for the National 
Science Foundation, and they've got a pretty good filter for 
catching people that are just riding the system to try to get 
grants if they are not really interested in getting a Phase 
III, they are just interested in paying good salaries to a 
group of researchers. So, they can kind of catch them through 
their computer scan.
    Chairman Smith. Will Polatomic consider giving part of your 
net profits that result from this government tap to your 
research back into a revolving program to fund the program? 
Maybe, I don't know what percent, maybe one percent, maybe two 
percent?
    Dr. Slocum. Well, I think the thing I would respond to, 
knowing how much difficulty we're having just getting the 
funding to stay in Phase III, but I think what would be 
reasonable is to tithe some time back into the community system 
to mentor, along with groups like UTD and SBA, to mentor 
people. We do that informally, because people come to us for 
help.
    Chairman Smith. I've got to turn this back over to 
Congresswoman Johnson.
    Ms. Johnson. Thank you.
    Let me just ask one more question on what you were saying 
to clarify. You mean there should be some type of consortium 
developed so that the small business people will know that 
that's a way to access the information?
    Dr. Slocum. Yes, and I have people that drop out of large 
companies like TI and when they start on their SBIR and come to 
me I'm amazed at how little they know about just getting 
through the process. And so, people that are coming from less 
sophisticated areas will have a tough time. So, a little bit of 
help from somebody that's an experienced and successful bidder 
on SBIR can be a great help, and it doesn't take a lot of time. 
You can do a lot at just a lunch sometimes.
    Ms. Johnson. Thank you very much.
    I was going to ask Mr. Montes of SBA, it's my understanding 
that about 15 percent of SBIR grants go to minorities and other 
under-represented small businesses. Are grants to women owned 
businesses included in this number?
    Mr. Montes. I believe so, yes, they are. I do have those 
numbers, but rather than shuffle through a bunch of papers for 
you here I'll look for them if you want to continue on, I'll 
get those for you.
    Mr. Klingelhofer. Congresswoman Johnson, women-owned 
business numbers are approximately seven percent, seven percent 
minorities.
    Ms. Johnson. seven percent of the 15 percent?
    Mr. Klingelhofer. No.
    Chairman Smith. So, that's two groups, 15 for minority and 
seven for women, is that correct?
    Ms. Johnson. So, they are calculated differently?
    Mr. Montes. Yes.
    Ms. Johnson. Historical Black colleges and universities and 
other minority serving institutions have a long history in 
science and technology. In the aggregate, they graduate many of 
the best and brightest minority scientists and engineers. As a 
matter of fact, the number one high school in the Nation is in 
the ghetto here in my district for science and engineering, 
math, and calculus.
    Are the STTR awards being made that involve these 
institutions, and if not, or if they are, what is the SBA doing 
to advertise the existence?
    Mr. Montes. Yes, ma'am, principally through the FAST 
program the SBA has been the lead agency for the past five 
years in an initiative to provide outreach and technical 
assistance to HBCUs, small disadvantaged minority and women-
owned businesses. Through a partnership between the EPA, DARPA 
and the SBA, representatives at various HBCUs were engaged by 
the co-sponsoring federal program managers to train them in the 
program administration and technical components of the SBIR and 
STTR programs.
    This has enabled the HBCUs to become mentors within their 
given states or regions, and assist in increasing the 
participation level of these under-represented groups.
    Ms. Johnson. Thank you.
    Sometime soon, I think maybe April, the National Science 
Foundation is having sort of a regional workshop for the 
minority-serving institutions here on campus. Would you 
consider having a similar type organized workshop for small 
business at minority-serving institutions, who are maybe within 
100 miles driving distance to a location.
    Mr. Montes. Yes, ma'am, absolutely.
    Ms. Johnson. Okay. I'd like to work with you in putting 
something like that together.
    Mr. Montes. Great.
    Ms. Johnson. It really can be very daunting for small 
businesses to deal with government. What advice do you have for 
a small high-technology business in the Dallas area that wishes 
to explore the SBIR opportunities, and how does one begin to 
know what agency to apply to?
    Mr. Montes. Well, certainly, they could start with our 
district office here in the Dallas-Fort Worth area. We are 
technically located in Fort Worth over by DFW Airport. 
Certainly the university system is a good place to start as 
well, but also I think that these solicitations, and, perhaps, 
Ms. Goodnight can tell us how the solicitations are issued, I 
presume that they are placed on the Internet and can be 
discovered.
    Ms. Goodnight. I think we have to be mindful to keep saying 
go to the internet. I mean, I'm a real people person. So, what 
I would offer is, although the SBIRworld.com is certainly a 
one-stop place to search all ten agencies, now 11 agencies, 
solicitations, this needs to be a program about people for it 
to really work effectively.
    So, I would encourage those potential applicants to come to 
the national conferences so they'll find the registration and 
all the administrivia about that on the SBIRworld.com. But come 
to the national conferences, one is coming up in April in 
Atlanta, Georgia, and meet with the program managers, to get a 
better sense of that agency's mission and culture, et cetera.
    And then, they've got a face with a name to go back to and 
really feel like after they've gone home from those conferences 
that they can pick up the phone and call my number and I will, 
you know, answer it. There's no secretary answering my phone.
    There's a pretty standard process, even though there are a 
lot of agencies, and we present the similarities about that 
process in our general overview at these conferences, and then 
we go into breakout sessions to go into the nuances. So, it's 
really a valuable two or three days worth of their time.
    NIH is actually having their annual conference, their sixth 
one, it's free.
    Chairman Smith. Would the lady yield?
    Ms. Johnson. Will you yield?
    Chairman Smith. No, you have to yield.
    Ms. Johnson. Oh, I'm sorry, yes.
    Chairman Smith. You mentioned 21 regional areas that NIH 
has, does this end up giving an advantage to those businesses 
in those 21 areas?
    Ms. Goodnight. There are 23 awarding components, the 
Institutes and Centers, each one of those has an SBIR 
allocation.
    Chairman Smith. Does this give an advantage to the 
businesses in those 23 regional areas, or does the outlying 
areas of those regions have as much advantage? How many miles 
or what are we talking about to come to a national meeting?
    Ms. Goodnight. To come to a national meeting? We hold those 
meetings around the country, so I don't know that I fully 
understand your question, but they are not always held in the 
same state.
    One of those nationals is always held in a rural state. So, 
sometimes it may only be 50 miles, or ten miles, other times 
it's going to involve, you know, a plane trip to get to that 
national.
    Chairman Smith. Okay.
    Ms. Johnson. Thank you.
    You know, in Texas you can travel a thousand miles.
    Ms. Goodnight. I've done that recently, just in the past 
two weeks.
    Ms. Johnson. And so, there are locations here that are 
closer to other states than for the rest of the state. So, in a 
state like this, we would have to have more than one consortium 
meeting to reach a number of the locations where the small 
business is concentrated, because we have a large number of 
small businesses in the state, and I would say probably at 
least 25 percent of those probably could benefit from some of 
the nurturing of SBIR.
    Mr. Klingelhofer. Congresswoman Johnson, I just wanted to 
point out that over the last five years we've had a number of 
these events and that small business minority firms who are 
interested in the program just contact SBA's District Office.
    Ms. Johnson. We appreciate that so very much. I want you to 
be mindful that it is very difficult to get to from Dallas, and 
it's about 300 and some miles. So, we would have to, while we 
appreciate that and want to keep going, it's 50 miles from 
Houston which is over 300 miles from here.
    We need something up around the University of Texas-
Arlington, University of Texas-Dallas, so that the north Texas 
end of the State would have access to that kind of assistance.
    Chairman Smith. Let me just say for the record, that last 
comment was by Victor Klingelhofer, the Associate Deputy 
Administrator for the Office of Government Contracting and 
Business Development for SBA.
    Mr. Alexander. Congresswoman Johnson.
    Ms. Johnson. Yes.
    Mr. Alexander. On May the 11th, the Small Business 
Development Center here is going to be sponsoring an event. So, 
that's an opportunity that we will provide additional training, 
right here in the local area.
    Ms. Johnson. Thank you very much. This is a very 
resourceful area right here where we are, that's why I chose 
this to be a site.
    Chairman Smith. I think for Dr. Slocum the time is about 
up, and I, but what I would like to do is just briefly, maybe 
in 30 or 45 seconds, any additional comments any of you would 
like to make, starting with you, Dr., well, starting at either 
end.
    Mr. Montes. Nothing here, I'll yield to my colleague.
    Ms. Goodnight. I would just encourage the contact, there's 
a lot of entrepreneurial ideas and talent in this state, across 
our entire country, and I want to see that momentum continue.
    Dr. Slocum. I would just like to say a personal word of 
thanks for this program.
    Dr. Murphy. I'd just like to reiterate that last comment. 
Thank you.
    Chairman Smith. Well, and thank you, excellent testimony, 
and it does take a lot of time, and a lot of work, and a lot of 
effort, so we appreciate all of you, not only being here, but 
working and developing on the testimony.
    I would like to leave the record open and would ask for 
your consideration on answering in writing any follow-up 
questions that the staff may have, that our Vice Chairman may 
have, or that I may have.
    And, with that.
    Ms. Johnson. No, no, don't close yet.
    Chairman Smith. No, no, don't close yet.
    Ms. Johnson. We would close this portion, but what I'd like 
to do is pass out the cards so that the audience can write any 
questions that they might have, and if we can't get them 
answered in the next 15 minutes we'll take them back with us 
and make sure they get answered.
    So, if you will write your name and address on the back of 
the card where you have a question, we'll make sure that we get 
the answers to you.
    Chairman Smith. And, with that, the hearing is concluded.
    [Whereupon, at 11:30 a.m., the Committee was adjourned.]
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